MPRWA Agenda Packet 05-08-2014
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Transcript of MPRWA Agenda Packet 05-08-2014
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 152
AgendaMonterey Peninsula Regional Water Authority (MPRWA)
Regular Meeting
700 PM Thursday May 8 2014
Council Chamber580 Pacific Street
Monterey California
ROLL CALL
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
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 AttnMonterey City Clerk 580 Pacific St Monterey CA 93940 The appropriate staff person will contactthe sender concerning the details
CONSENT ITEMS
1 Minutes from March 13 2014 Regular Meeting - Milton
2 Minutes from March 27 2014 Regular Meeting - Milton
3 Minutes from April 10 2014 Regular Meeting - Milton
4 Approve and File Checks through May 8 2014 - Milton
5 Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget and Adopting the Fiscal Year 2014-15 Operating Budget - Cullem
AGENDA ITEMS
6 Receive Report Discuss and Provide Direction on Public Outreach - Beleny
7 Receive Report Discuss and Provide Direction on Presentation from the MontereyPeninsula Water Management District Regarding the Deep Water Desal Project - Stoldt
8 Receive Report Discuss and Provide Direction Regarding Presentation from Monterey Regional Water Pollution Control Agency Regarding Negotiations for Source and Product Water for the Ground Water Replenishment Project - Israel
9 Receive Report Discuss and Approve Adopting a Resolution Amending the Governance Committee Agreement to Authorize the Governance Committee and Water Authority to Advertise and Award The Value Engineering Contract - Cullem
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Thursday May 8 2014
2
10 Receive Report Discuss and Provide Direction Regarding Commissioner Michael R Peevey and ALJ Gary Weatherfords Ruling Requesting Comments on Surcharge Options and Proposals - Cullem
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 RelayService (CRS) to speak to staff at the Monterey City Clerkrsquos 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 Clerkrsquos 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 Clerkrsquos Office at 580Pacific St Room 6 Monterey CA 93940 This agenda is posted in compliance with CaliforniaGovernment Code Section 549542(a) or Section 54956
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 13 2014COUNCIL CHAMBER580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Kampe Pendergrass Della Sala Rubio
Directors Absent None
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 701 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
There were no reports from Directors Executive Director Cullem reported on changes to theprinted packet materials and questioned direction on how to proceed with Cal Amrsquos request toreduce Surcharge 1 from 15 to 45 and extend the period of time it was charged TheDirectors requested he handle it administratively
PUBLIC COMMENTS
President Della Sala invited public comment for items not on the agenda
bull Tom Rowley spoke to the Government Affairs Committee meeting where NicholeCharles reported regarding SB 936 He requested re-ordering the agenda to take upAgenda Item 8 first
bull Doug Wilhelm questioned the proposed reduced surcharge asking if it would increasethe total amount of money over the course of the loan Executive Director Cullemresponded that it would not
bull George Breammer advocated strongly for residents to take care of themselves andencouraged individuals to obtain personal rain water and grey water catchment andother self sustaining water supply systems
bull Darby Mossworth spoke concerning future legislation that would allow unlimitedamounts of money to be contributed to elections
APPROVAL OF MINUTES
On a motion by Director Pendergrass seconded by Director Edelen and carried by thefollowing vote the Monterey Peninsula Regional Water Authority approved the minutes for bothJanuary 30 2014 and February 13 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20142
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
1 January 30 2014 Special Meeting
Action Approved
2 February 13 2014
Action Approved
AGENDA ITEMS
3 Approve and File Checks for the Period of February 2014
Action Approved
Authority Clerk Milton reported regarding checks processed during February 2014 Under publiccomment David Lifland requested an update regarding reimbursement from the County ofMonterey and the Monterey Peninsula Water Management District both which are still pending
On a motion by Director Rubio seconded by Director Kampe and carried by the following votethe Monterey Peninsula Regional Water Authority approved to file the checks for the month ofFebruary 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
4 Authorize Staff to Send Letter Nominating the Salinas and Carmel River Basins Study forFunding Under the Bureau of Reclamations FY14 Basin Study Program
Dave Stoldt General Manager of the Monterey Peninsula Water Management District spoke tothe item which would focus on assessing long term climate change on the local water supplyfrom the Salinas and Carmel river basins Mr Stolt requested a letter of support nominating thisstudy to the Bureau of Reclamation to accompany the application put forth by MRWPCA andMRWMD In closing he informed the Directors he would not stay for Agenda Item 8 to maintainthe neutrality of the MPWMD President Della Sala invited public comment on the item and hadno requests to speak
On a motion by Vice President Burnett seconded by Director Rubio and carried by the
following vote the Monterey Peninsula Regional Water Authority authorized staff to send aletter nominating the Salinas and Carmel River Basins study for funding under the Bureau ofReclamationsrsquo FY 14 Basin Study Program
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20143
5 Adopt Resolution Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) as SpecialCounsel for the period January 1 2014 through December 31 2014 Authorize the ExecutiveDirector to sign a Consent and Waiver of Conflict of Interest and Authorize the President toexecute the agreement for legal services
Executive Director Cullem spoke to the item regarding extending the legal services contract
through December 31 2014 and authorize changing the firm from being the AuthorityrsquosAttorney of Record to being Special Legal Council
President Della Sala invited public comment on the item Salfwat Malek questioned the totalcost of the contract Mr Cullem indicated the budgeted amount is not to exceed $194000 for2014
Mayor Rubio questioned if there was any ability to align the contract with the fiscal year MrCullem spoke to the administrative effort required to process renew and track all contracts atone time Director Kampe spoke to the substantial costs for the legal services but defended thecosts by saying that these are substantial projects which require a large level of collaborationcooperation and perseverance and that this is a very modest budge considering the total cost ofthe project The Directors spoke in support Mr McGlothlins efforts and experience noting thatalthough expensive his efforts saved rate payers over 120 million dollars between theSettlement Agreements and through Governance Committee structure and participation of theRFQ and RFP process
On a motion by Director Edelen and seconded by Director Rubio and carried by the followingvote the Monterey Peninsula Regional Water Authority approved the staff recommendation andadopted Resolution 14-02 Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) asSpecial Counsel for the period January 1 2014 through December 31 2014 authorized theExecutive Director to sign a Consent and Waiver of Conflict of Interest and authorized thePresident to execute the agreement for legal services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
6 Authorize Extension of Contract with the City of Monterey For Executive Director Services
On a motion by Director Rubio and seconded by Director Edelen and carried by the followingvote the Monterey Peninsula Regional Water Authority authorized extending the contract withthe City of Monterey for Executive Director services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
Authority Clerk Milton reported on the item requesting the Authority to authorize extension ofthe contract for Executive Director services with the City of Monterey President Della Salarecused himself as mayor of the City of Monterey the contracting agency Vice President
Burnett invited public comment on the item and had no requests to speak The Directors spoketo the outstanding job Mr Cullem has been doing
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MPRWA Minutes Thursday March 13 2014
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Regular Meeting Minutes - Thursday March 13 20144
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20147
The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Thursday May 8 2014
2
10 Receive Report Discuss and Provide Direction Regarding Commissioner Michael R Peevey and ALJ Gary Weatherfords Ruling Requesting Comments on Surcharge Options and Proposals - Cullem
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 RelayService (CRS) to speak to staff at the Monterey City Clerkrsquos 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 Clerkrsquos 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 Clerkrsquos Office at 580Pacific St Room 6 Monterey CA 93940 This agenda is posted in compliance with CaliforniaGovernment Code Section 549542(a) or Section 54956
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 13 2014COUNCIL CHAMBER580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Kampe Pendergrass Della Sala Rubio
Directors Absent None
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 701 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
There were no reports from Directors Executive Director Cullem reported on changes to theprinted packet materials and questioned direction on how to proceed with Cal Amrsquos request toreduce Surcharge 1 from 15 to 45 and extend the period of time it was charged TheDirectors requested he handle it administratively
PUBLIC COMMENTS
President Della Sala invited public comment for items not on the agenda
bull Tom Rowley spoke to the Government Affairs Committee meeting where NicholeCharles reported regarding SB 936 He requested re-ordering the agenda to take upAgenda Item 8 first
bull Doug Wilhelm questioned the proposed reduced surcharge asking if it would increasethe total amount of money over the course of the loan Executive Director Cullemresponded that it would not
bull George Breammer advocated strongly for residents to take care of themselves andencouraged individuals to obtain personal rain water and grey water catchment andother self sustaining water supply systems
bull Darby Mossworth spoke concerning future legislation that would allow unlimitedamounts of money to be contributed to elections
APPROVAL OF MINUTES
On a motion by Director Pendergrass seconded by Director Edelen and carried by thefollowing vote the Monterey Peninsula Regional Water Authority approved the minutes for bothJanuary 30 2014 and February 13 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
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MPRWA Minutes Thursday March 13 2014
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Regular Meeting Minutes - Thursday March 13 20142
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
1 January 30 2014 Special Meeting
Action Approved
2 February 13 2014
Action Approved
AGENDA ITEMS
3 Approve and File Checks for the Period of February 2014
Action Approved
Authority Clerk Milton reported regarding checks processed during February 2014 Under publiccomment David Lifland requested an update regarding reimbursement from the County ofMonterey and the Monterey Peninsula Water Management District both which are still pending
On a motion by Director Rubio seconded by Director Kampe and carried by the following votethe Monterey Peninsula Regional Water Authority approved to file the checks for the month ofFebruary 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
4 Authorize Staff to Send Letter Nominating the Salinas and Carmel River Basins Study forFunding Under the Bureau of Reclamations FY14 Basin Study Program
Dave Stoldt General Manager of the Monterey Peninsula Water Management District spoke tothe item which would focus on assessing long term climate change on the local water supplyfrom the Salinas and Carmel river basins Mr Stolt requested a letter of support nominating thisstudy to the Bureau of Reclamation to accompany the application put forth by MRWPCA andMRWMD In closing he informed the Directors he would not stay for Agenda Item 8 to maintainthe neutrality of the MPWMD President Della Sala invited public comment on the item and hadno requests to speak
On a motion by Vice President Burnett seconded by Director Rubio and carried by the
following vote the Monterey Peninsula Regional Water Authority authorized staff to send aletter nominating the Salinas and Carmel River Basins study for funding under the Bureau ofReclamationsrsquo FY 14 Basin Study Program
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
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Regular Meeting Minutes - Thursday March 13 20143
5 Adopt Resolution Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) as SpecialCounsel for the period January 1 2014 through December 31 2014 Authorize the ExecutiveDirector to sign a Consent and Waiver of Conflict of Interest and Authorize the President toexecute the agreement for legal services
Executive Director Cullem spoke to the item regarding extending the legal services contract
through December 31 2014 and authorize changing the firm from being the AuthorityrsquosAttorney of Record to being Special Legal Council
President Della Sala invited public comment on the item Salfwat Malek questioned the totalcost of the contract Mr Cullem indicated the budgeted amount is not to exceed $194000 for2014
Mayor Rubio questioned if there was any ability to align the contract with the fiscal year MrCullem spoke to the administrative effort required to process renew and track all contracts atone time Director Kampe spoke to the substantial costs for the legal services but defended thecosts by saying that these are substantial projects which require a large level of collaborationcooperation and perseverance and that this is a very modest budge considering the total cost ofthe project The Directors spoke in support Mr McGlothlins efforts and experience noting thatalthough expensive his efforts saved rate payers over 120 million dollars between theSettlement Agreements and through Governance Committee structure and participation of theRFQ and RFP process
On a motion by Director Edelen and seconded by Director Rubio and carried by the followingvote the Monterey Peninsula Regional Water Authority approved the staff recommendation andadopted Resolution 14-02 Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) asSpecial Counsel for the period January 1 2014 through December 31 2014 authorized theExecutive Director to sign a Consent and Waiver of Conflict of Interest and authorized thePresident to execute the agreement for legal services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
6 Authorize Extension of Contract with the City of Monterey For Executive Director Services
On a motion by Director Rubio and seconded by Director Edelen and carried by the followingvote the Monterey Peninsula Regional Water Authority authorized extending the contract withthe City of Monterey for Executive Director services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
Authority Clerk Milton reported on the item requesting the Authority to authorize extension ofthe contract for Executive Director services with the City of Monterey President Della Salarecused himself as mayor of the City of Monterey the contracting agency Vice President
Burnett invited public comment on the item and had no requests to speak The Directors spoketo the outstanding job Mr Cullem has been doing
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ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
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Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
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Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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Execution Copy May 8 2014
2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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Execution Copy May 8 2014
3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 13 2014COUNCIL CHAMBER580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Kampe Pendergrass Della Sala Rubio
Directors Absent None
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 701 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
There were no reports from Directors Executive Director Cullem reported on changes to theprinted packet materials and questioned direction on how to proceed with Cal Amrsquos request toreduce Surcharge 1 from 15 to 45 and extend the period of time it was charged TheDirectors requested he handle it administratively
PUBLIC COMMENTS
President Della Sala invited public comment for items not on the agenda
bull Tom Rowley spoke to the Government Affairs Committee meeting where NicholeCharles reported regarding SB 936 He requested re-ordering the agenda to take upAgenda Item 8 first
bull Doug Wilhelm questioned the proposed reduced surcharge asking if it would increasethe total amount of money over the course of the loan Executive Director Cullemresponded that it would not
bull George Breammer advocated strongly for residents to take care of themselves andencouraged individuals to obtain personal rain water and grey water catchment andother self sustaining water supply systems
bull Darby Mossworth spoke concerning future legislation that would allow unlimitedamounts of money to be contributed to elections
APPROVAL OF MINUTES
On a motion by Director Pendergrass seconded by Director Edelen and carried by thefollowing vote the Monterey Peninsula Regional Water Authority approved the minutes for bothJanuary 30 2014 and February 13 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20142
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
1 January 30 2014 Special Meeting
Action Approved
2 February 13 2014
Action Approved
AGENDA ITEMS
3 Approve and File Checks for the Period of February 2014
Action Approved
Authority Clerk Milton reported regarding checks processed during February 2014 Under publiccomment David Lifland requested an update regarding reimbursement from the County ofMonterey and the Monterey Peninsula Water Management District both which are still pending
On a motion by Director Rubio seconded by Director Kampe and carried by the following votethe Monterey Peninsula Regional Water Authority approved to file the checks for the month ofFebruary 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
4 Authorize Staff to Send Letter Nominating the Salinas and Carmel River Basins Study forFunding Under the Bureau of Reclamations FY14 Basin Study Program
Dave Stoldt General Manager of the Monterey Peninsula Water Management District spoke tothe item which would focus on assessing long term climate change on the local water supplyfrom the Salinas and Carmel river basins Mr Stolt requested a letter of support nominating thisstudy to the Bureau of Reclamation to accompany the application put forth by MRWPCA andMRWMD In closing he informed the Directors he would not stay for Agenda Item 8 to maintainthe neutrality of the MPWMD President Della Sala invited public comment on the item and hadno requests to speak
On a motion by Vice President Burnett seconded by Director Rubio and carried by the
following vote the Monterey Peninsula Regional Water Authority authorized staff to send aletter nominating the Salinas and Carmel River Basins study for funding under the Bureau ofReclamationsrsquo FY 14 Basin Study Program
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
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Regular Meeting Minutes - Thursday March 13 20143
5 Adopt Resolution Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) as SpecialCounsel for the period January 1 2014 through December 31 2014 Authorize the ExecutiveDirector to sign a Consent and Waiver of Conflict of Interest and Authorize the President toexecute the agreement for legal services
Executive Director Cullem spoke to the item regarding extending the legal services contract
through December 31 2014 and authorize changing the firm from being the AuthorityrsquosAttorney of Record to being Special Legal Council
President Della Sala invited public comment on the item Salfwat Malek questioned the totalcost of the contract Mr Cullem indicated the budgeted amount is not to exceed $194000 for2014
Mayor Rubio questioned if there was any ability to align the contract with the fiscal year MrCullem spoke to the administrative effort required to process renew and track all contracts atone time Director Kampe spoke to the substantial costs for the legal services but defended thecosts by saying that these are substantial projects which require a large level of collaborationcooperation and perseverance and that this is a very modest budge considering the total cost ofthe project The Directors spoke in support Mr McGlothlins efforts and experience noting thatalthough expensive his efforts saved rate payers over 120 million dollars between theSettlement Agreements and through Governance Committee structure and participation of theRFQ and RFP process
On a motion by Director Edelen and seconded by Director Rubio and carried by the followingvote the Monterey Peninsula Regional Water Authority approved the staff recommendation andadopted Resolution 14-02 Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) asSpecial Counsel for the period January 1 2014 through December 31 2014 authorized theExecutive Director to sign a Consent and Waiver of Conflict of Interest and authorized thePresident to execute the agreement for legal services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
6 Authorize Extension of Contract with the City of Monterey For Executive Director Services
On a motion by Director Rubio and seconded by Director Edelen and carried by the followingvote the Monterey Peninsula Regional Water Authority authorized extending the contract withthe City of Monterey for Executive Director services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
Authority Clerk Milton reported on the item requesting the Authority to authorize extension ofthe contract for Executive Director services with the City of Monterey President Della Salarecused himself as mayor of the City of Monterey the contracting agency Vice President
Burnett invited public comment on the item and had no requests to speak The Directors spoketo the outstanding job Mr Cullem has been doing
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MPRWA Minutes Thursday March 13 2014
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Regular Meeting Minutes - Thursday March 13 20144
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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Regular Meeting Minutes - Thursday March 13 20147
The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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MPRWA Minutes Thursday March 27 2014
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20142
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
1 January 30 2014 Special Meeting
Action Approved
2 February 13 2014
Action Approved
AGENDA ITEMS
3 Approve and File Checks for the Period of February 2014
Action Approved
Authority Clerk Milton reported regarding checks processed during February 2014 Under publiccomment David Lifland requested an update regarding reimbursement from the County ofMonterey and the Monterey Peninsula Water Management District both which are still pending
On a motion by Director Rubio seconded by Director Kampe and carried by the following votethe Monterey Peninsula Regional Water Authority approved to file the checks for the month ofFebruary 2014
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
4 Authorize Staff to Send Letter Nominating the Salinas and Carmel River Basins Study forFunding Under the Bureau of Reclamations FY14 Basin Study Program
Dave Stoldt General Manager of the Monterey Peninsula Water Management District spoke tothe item which would focus on assessing long term climate change on the local water supplyfrom the Salinas and Carmel river basins Mr Stolt requested a letter of support nominating thisstudy to the Bureau of Reclamation to accompany the application put forth by MRWPCA andMRWMD In closing he informed the Directors he would not stay for Agenda Item 8 to maintainthe neutrality of the MPWMD President Della Sala invited public comment on the item and hadno requests to speak
On a motion by Vice President Burnett seconded by Director Rubio and carried by the
following vote the Monterey Peninsula Regional Water Authority authorized staff to send aletter nominating the Salinas and Carmel River Basins study for funding under the Bureau ofReclamationsrsquo FY 14 Basin Study Program
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20143
5 Adopt Resolution Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) as SpecialCounsel for the period January 1 2014 through December 31 2014 Authorize the ExecutiveDirector to sign a Consent and Waiver of Conflict of Interest and Authorize the President toexecute the agreement for legal services
Executive Director Cullem spoke to the item regarding extending the legal services contract
through December 31 2014 and authorize changing the firm from being the AuthorityrsquosAttorney of Record to being Special Legal Council
President Della Sala invited public comment on the item Salfwat Malek questioned the totalcost of the contract Mr Cullem indicated the budgeted amount is not to exceed $194000 for2014
Mayor Rubio questioned if there was any ability to align the contract with the fiscal year MrCullem spoke to the administrative effort required to process renew and track all contracts atone time Director Kampe spoke to the substantial costs for the legal services but defended thecosts by saying that these are substantial projects which require a large level of collaborationcooperation and perseverance and that this is a very modest budge considering the total cost ofthe project The Directors spoke in support Mr McGlothlins efforts and experience noting thatalthough expensive his efforts saved rate payers over 120 million dollars between theSettlement Agreements and through Governance Committee structure and participation of theRFQ and RFP process
On a motion by Director Edelen and seconded by Director Rubio and carried by the followingvote the Monterey Peninsula Regional Water Authority approved the staff recommendation andadopted Resolution 14-02 Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) asSpecial Counsel for the period January 1 2014 through December 31 2014 authorized theExecutive Director to sign a Consent and Waiver of Conflict of Interest and authorized thePresident to execute the agreement for legal services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
6 Authorize Extension of Contract with the City of Monterey For Executive Director Services
On a motion by Director Rubio and seconded by Director Edelen and carried by the followingvote the Monterey Peninsula Regional Water Authority authorized extending the contract withthe City of Monterey for Executive Director services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
Authority Clerk Milton reported on the item requesting the Authority to authorize extension ofthe contract for Executive Director services with the City of Monterey President Della Salarecused himself as mayor of the City of Monterey the contracting agency Vice President
Burnett invited public comment on the item and had no requests to speak The Directors spoketo the outstanding job Mr Cullem has been doing
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Regular Meeting Minutes - Thursday March 13 20144
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Regular Meeting Minutes - Thursday March 13 20143
5 Adopt Resolution Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) as SpecialCounsel for the period January 1 2014 through December 31 2014 Authorize the ExecutiveDirector to sign a Consent and Waiver of Conflict of Interest and Authorize the President toexecute the agreement for legal services
Executive Director Cullem spoke to the item regarding extending the legal services contract
through December 31 2014 and authorize changing the firm from being the AuthorityrsquosAttorney of Record to being Special Legal Council
President Della Sala invited public comment on the item Salfwat Malek questioned the totalcost of the contract Mr Cullem indicated the budgeted amount is not to exceed $194000 for2014
Mayor Rubio questioned if there was any ability to align the contract with the fiscal year MrCullem spoke to the administrative effort required to process renew and track all contracts atone time Director Kampe spoke to the substantial costs for the legal services but defended thecosts by saying that these are substantial projects which require a large level of collaborationcooperation and perseverance and that this is a very modest budge considering the total cost ofthe project The Directors spoke in support Mr McGlothlins efforts and experience noting thatalthough expensive his efforts saved rate payers over 120 million dollars between theSettlement Agreements and through Governance Committee structure and participation of theRFQ and RFP process
On a motion by Director Edelen and seconded by Director Rubio and carried by the followingvote the Monterey Peninsula Regional Water Authority approved the staff recommendation andadopted Resolution 14-02 Approving Brownstein Hyatt Farber Schreck LLP (Brownstein) asSpecial Counsel for the period January 1 2014 through December 31 2014 authorized theExecutive Director to sign a Consent and Waiver of Conflict of Interest and authorized thePresident to execute the agreement for legal services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
6 Authorize Extension of Contract with the City of Monterey For Executive Director Services
On a motion by Director Rubio and seconded by Director Edelen and carried by the followingvote the Monterey Peninsula Regional Water Authority authorized extending the contract withthe City of Monterey for Executive Director services
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS None
Authority Clerk Milton reported on the item requesting the Authority to authorize extension ofthe contract for Executive Director services with the City of Monterey President Della Salarecused himself as mayor of the City of Monterey the contracting agency Vice President
Burnett invited public comment on the item and had no requests to speak The Directors spoketo the outstanding job Mr Cullem has been doing
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20144
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20144
ABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
7 Adopt Financial Policies and Procedures
On a motion by Director Edelen and seconded by Director Kampe and carried by the followingvote the Monterey Peninsula Regional Water Authority adopted the presented FinancialPolicies and Procedures as amended
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
8 Receive Report Discuss and Provide Direction Regarding Issues Implications ofCommissioning a Study Regarding a Public Take Over of Cal Am
Executive Director Cullem provided a report regarding the February 3 2014 the WaterAuthority TAC meeting which discussed the issues and implications of commissioning a studyregarding a public acquisition of Cal Am and recommended that the Authority first consider ifthe issue was appropriate for consideration and authority under the formation agreement andsecond how the action may be interpreted by state agencies as well as any impact on future
bond funding Mr Cullem outlined the following four options for consideration should the WaterAuthority decide to consider conducting a study of an acquisition of Cal-Am
1 Commission a study of a public takeover of Cal-Am with the intent to provide informationprior to a vote by the public
2 Commission a study of a public takeover of Cal-Am with the intent to provide a Water
Authority recommendation prior to a vote by the public
3 Defer consideration of study until some undetermined time after a vote by the public
4 Determine that commissioning a study of the subject is outside the purpose of the Water
Authority
President Della Sala invited public comments on the item
Executive Director Cullem provided the report and recommended adopting a policy that moreclearly outlines the procedures and operations with regard to financial operations for theAuthority Director Kampe requested adding language to the whistle blower policy to report tothe President andor Vice President any concerns
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Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20145
bull Tom Rowley Nelson Vega John Narigi and Rick Heuer said the public needs correctfacts regarding the impacts if the ballot measure passes and spoke in support of thestudy
bull Safwat Malek and Mike Baer spoke in support of publicly owned water utilities in thecounty and expressed concern regarding costs and the PUC
bull Phil Wellman Darby Mossworth a citizen Sal Cardinale Melanie Krislock CharlieCheck Alan Ebels Andrew Bell Doug Whilhelm John Hall Dan Turner GeorgeBrehmer Jay Rowland and Jessie Williams requested the Directors to support PublicWater Now and spoke against Cal Am
bull Dan Presser suggested having a public forum as a way to inform voters of Measure O
bull Kevin Tilden from Cal Am spoke to the comments regarding water spikes and requestedanyone who experiences a spike should contact customer service who will helprecognize the leak and fix it If it is identified and fixed they are not penalized Heindicated that all political advertisements paid for by cal am are clearly labeled and most
are not done at rate payer or customer expense He urged an impartial factual analysisand spoke in support of the study
bull George Riley expressed disappointment regarding the TAC discussion of this item anddid not think that the staff report was objective or includes all the information availableHe spoke in support of Public Water Now and publicly owned water
bull David Lifland Spoke in support of public water but indicated that the community shouldfocus their efforts on obtaining a water source first
bull Ron Cohen Managing Director of Public Water Now spoke against the study indicatingthe amount of money projected would only politicize the issue but not analyze it
Public Comment was closed
Director Edelen spoke to the Cease and Desist Order imposed and the requirement to find anew water source and spoke to the challenges that the desal project is up against He spoke insupport of the study as an independent analysis from to provide factual information back to theBoard and the public
Director Rubio spoke to the purpose of the Authority and to the need for non-biased factualinformation to help the voters understand the impacts of the MeasureDirector Burnett spoke to the TAC discussion on the item reiterating it was a regular publicly
noticed meeting with an agenda distributed prior to the meeting and there was minimal publicparticipation He spoke against comments that there was not an opportunities for proper orequal debate He spoke to the community debating water for generations and the Authority ismoving toward a decision The TAC recommendation was for the Board to conduct an analysiswhich focuses on the purpose of the Authority as written in the mission statement and listed thereasons that this project falls within the scope of the authority
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20147
The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20146
Director Kampe questioned the election dates and the ability to complete the project prior to theelection and then spoke to public sentiment of priorities presented 15 years ago within his
jurisdiction with the priority being sufficient water supply He spoke in support of low cost waterbut noted it was more important is having sufficient water first He lastly indicated that no matterhow objective the report is it will always be viewed as partisan and also did not think that itwould be a wise use of money for timing purposes
Director Pendergrass spoke against a study that the results will be taken as the Authorityposition and will perpetuate skepticism He spoke to the history of the failed desal projectwhich caused the formation of this group to provide governance of the public site He remindedthe public of the concession by Cal Am to allow public oversight
Vice President Burnett indicated we are operating in the realities of a water-constrainedenvironment faced with a regulatory guideline in the way the CDO was intended This is not aquestion of if we like or dont like Cal Am it is about what will deliver a water supply solution tohave sufficient water cost effectively with appropriate governance He expressed fear that thesingle greatest risk is losing the consensus that the community has built in the last two yearsThis issue has the potential to be divisive enough to leave us in a position not to be able to
petition for a relaxation of the CDO because no project will be complete by January 1 2016 andthe ramifications are severe because there will be no water supply regardless of ownership
Vice President Burnett then outlined the accomplishments of the Authority over the last twoyears of its existence including the tenants of the Authority Governance committee and thebenefits it provides the profit cuts achieved through the public financing work saving the ratepayers over 20 million dollars and then he spoke to the hurdles yet to come
The Directors discussed their authority and weather the public would be better served by theAuthority taking a position or if the public would be better served by laying out impartial factualinformation The Directors spoke against the study due to timing unknown true cost chargedback to the member jurisdictions and many will not change their minds based on the report and
suggested taking a position as peninsula mayors
On Motion by Director______ and seconded by Director Pendergrass and passed by thefollowing vote the Authority directed staff to write up and bring back for approval a documentwhich outlines the Authority position opposing ballot Measure O described this evening andverify the legal ability to take such a position
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
President Della Sala adjourned the meeting to recess at 1009 pm
9 Receive Report Discuss and Provide Recommendation on the Status of Monterey PeninsulaWater Supply Project
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20147
The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 13 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 13 20147
The meeting reconvened at 1014 pm Executive Director Cullem provided an update on thestatus of the borehole construction project noting the second bore hole drilling was about tobegin and the results of the water analysis will be released once certified He then spoke to thepower purchase agreement status and indicated the report regarding the capital costs of theengineering solution will be published by the end of march He further reported on the slippagebeing reflected in the CPUC schedule reflected as a total 6-month delay being imposed by the
CPUC
The Directors discussed the timeline and indicated that the City of Marinarsquos ultimate approvalsped up the process by months and should be recognized and that the schedule as presentedis doable unless something else delays the project President Della Sala invited publiccomment on the item
bull Tom Rowley expressed concern regarding lack of data in the draft EIR from the testslant wells indicating since it is new technology it will be challenging and will invitecriticism Suggested having the TAC review
bull David Lifland requested getting Point Blue to sign off on a well requested an update on
the remaining reports due to the City of Marina and asked if the Authority should orcould intervene
Ian Crooks Engineering Manager for Cal Am spoke to the issue of getting viable slant welltechnology and reported that nearly all reports due to the City of Marina have been completedand the consultant will have a draft MDNA ready in April for public review Chair Burnettindicated that if there is any desire by the Board for additional review or analysis of the DraftEIR or the issue of brine disposal it should be agendized in the near future
ADJOURNMENT
Meeting was adjourned at 1033 pm
ATTEST
Lesley Milton Authority Clerk Chuck Dells Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday March 27 2014SEASIDE CITY HALL440 HARCOURT AVESEASIDE CA 93955
Directors Present Burnett Edelen Pendergrass Rubio Della Sala
Directors Absent Kamp
Staff Present Executive Director Legal Counsel Authority Clerk
ROLL CALL
The meeting was called to order at 530 pm
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett announced that the Governance Committee meeting on Monday March31 2014 will begin the value engineering process for the design-build contract of thedesalination facility The Committee will also receive a project update and alternative intakestrategies Mr Burnett further reported that SB 936 was introduced by Assemblymember BillMonning and that Dave Stoldt and Mr Burnett will be testifying in support of the legislation
Executive Director Cullem received notice from County Administrator Office that they arepursuing approval and payment for their fair share contribution for FY 2012-13 which wouldoffset any additional funding needed for the current fiscal year noting that the County isrepresented on the Governance Committee representing the rate payers of unincorporated
Monterey County
PUBLIC COMMENTS
bull David Lifland expressed concern regarding the lack of storage during dry seasons andsuggested consideration of building additional reservoirs to hold the storm flows
bull Dan Turner spoke to the relative costs of pubic and private water Questioned DirectorEdelenrsquos comment previously made regarding a study of public vs private water Hespoke against the credibility of the organization and the complicated nature of thefindings
bull Lee Willaby Pacific Grove resident spoke in support of Public Water Nowbull Tina Holsten expressed concern regarding Cal Am taking advantage of the water politics
on the peninsula and expressed concerned that if the public wants to buy out Cal Am itwould be more expensive in the future
bull Mr Cardinale questioned the financing of the desal facility and how the bonds would bepaid to which Vice President Burnett spoke to how utilities are regulated in the State ofCalifornia
AGENDA ITEMS
1 Consider Taking A Position on Monterey Peninsula Water Management District Measure O(DiscussionAction)
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MPRWA Minutes Thursday March 27 2014
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Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
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Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
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Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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Execution Copy May 8 2014
2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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Execution Copy May 8 2014
3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20142
Executive Director Cullem spoke to the item recapping the previous meeting where this itemwas discussed and outlined the changes proposed to the draft resolution included in the packet
President Della Sala invited public comment for the item
bull Tom Rowley Rick Heuer Linda Doras Dean Province and Lawson Little spoke insupport of adopting the proposed resolution taking a position against Measure O
bull David Lifland expressed concern regarding unintended consequences for the efforts ofPublic Water Now
bull Dale Heikhaus Safwat Malek Lee Willaby and Ron Nelson requested that the Authoritynot take a position on the measure
bull Renee Boscoff Nelson Vegas Sam Teel Chair of Monterey County Hospitalityassociation Kevin Stone Monterey County Association of Realtors Mike ZimmermanCoalition of Peninsula Businesses Jody Hansen President of Monterey PeninsulaChamber of Commerce Rick Aldinger and Maria Buell spoke in support of taking aposition against Measure O citing the focus should be to obtain a sustainable watersupply and public vs private water can be debated after Residents and businessesneed water to survive
bull Alvin Edwards Seaside Council Member requested this decision be taken to eachMemberrsquos City Councils before a decision is made
bull Tina Holsten Michael Baer David Rodder Suzie Yapley and Dianne Cotton spoke insupport of measure O and against Cal Am
bull Malone Hodges spoke to the confusion of the water issue and how there are so manyagencies being so opposed He thanked the Directors for the leadership by theAuthority
bull Mike Bekker spoke as Chair of Pacific Grove Chamber of Commerce and requestedsupporting Measure O Speaking as a resident he spoke to disinformation being spreadaround regarding the ballot measure and is confusing voters
bull
George Riley spoke representing Public Water Now expressed disappointment that theAuthority did not request or allow Public Water Now to make a presentation on MeasureO and spoke with frustration to the limitation to 3 minutes He reported on calling theState Water Resources Control Board who said that passage of Measure O will notimpact the CDO
bull Paul Bruno spoke with disagreement to Mr Riley in that the passage of the measure willimpact the community with negative consequences and is a risk we cannot afford
bull Scott Dick spoke to research conducted which provides solid substantiated evidence ofother cities that facilitate public water all being more expensive He spoke to the studydone by Food and Water Watch which provided information that is being misinterpretedby PWN for their benefit He requested that the Authority oppose Measure O because itwill not produce cheaper water as advertised
Having no further requests to speak Public Comment was closed
Mayor Edelen expressed disappointment that a large number of audience members left themeeting after public comment before there was even a response given or a dialoguefacilitated He spoke to the focus of the Board to provide a sustainable water supply andanything that distracts from that is an issue which Measure O would He spoke concerningthe projected disastrous impacts to the Monterey Peninsula if the CDO was enforced
Mayor Rubio spoke to his comments made during the last meeting and indicated he did nothear any facts that were data driven which changed his position on this issue He believes
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday March 27 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday March 27 20143
that this action is consistent with the purpose of the Authority
Director Kampe spoke to the responsibility as Mayors to ensure a water supply to supportthe infrastructure of the community and assured the public that they are not immune fromthe consequence as residents if the community is forced to ration water He spoke insupport of the resolution
Director Pendergrass indicated that his position had not changed from the last meeting andthat Measure O will prohibit finding a water supply
Vice President Burnett expressed concerned with the level of the misinformation beingdistributed and spoke to the need to work collaboratively as a community to obtain a watersupply before the water cliff He spoke to efforts the Mayors have been involved with tomake that happen and that taking a position is not politically advantageous but that hethinks it is the right thing to do in this community
President Della Sala thanked the community for their passion and their comments and theAuthority members for their courage He cited this as politically risky position but is beingtaken to obtain a water supply for the current citizens as well future generations He felt that
Mayors are elected to make decisions in the best interest and for the betterment of theircommunities
The Directors discussed suggested resolution changes speaking to potential impacts ofbase closures and that language should be added to say securing a water supply will help toretain the military establishments here on the Monterey Peninsula and the next round ofBRAC will align with the timing of the proposed completion of our water supply projects
On motion by Director Rubio and seconded by Director Edelen and passed by the followingvote the Authority approved Resolution no 14-02 as amended in its entirety expressingopposition to Measure O
AYES 5 DIRECTORS Burnett Edelen Kampe Pendergrass Rubio DellaSala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 733 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MINUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)Regular Meeting
700 PM Thursday April 10 2014580 PACIFIC STREET
MONTEREY CALIFORNIA
Directors Present Burnett Edelen Alt Lucius Pendergrass Rubio Della Sala
Directors Absent None
Staff Present Executive Director Legal Counsel Clerk
ROLL CALL
President Della Sala called the meeting to order at 700 pm
Alternate Director Casey Lucius was present representing the City of Pacific Grove
PLEDGE OF ALLEGIANCE
REPORTS FROM BOARD DIRECTORS AND STAFF
No reports from Directors or staff
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda
Tom Rowley spoke representing the Monterey Peninsula Taxpayers Association regardingMonterey Peninsula Water Management District use of Ordinance 152 funds and is awaiting adecision by the judge regarding a submitted referendum He thanked the Directors for notapproving a study and for not supporting Measure O Nelson Vega requested an update of theprojects that make up the portfolio and spoke to the potential to size the desalination facility atover 12000 acrefoot David Lifland spoke to the proposed plan that the Seaside Basin wouldbe a mixture of water from all three water projects but questioned the intentions to price thatwater
AGENDA ITEMS
1 Receive Discuss Revise and Approve the Request for Proposal (RFP) and Scope of Work fora Value Engineering (VE) Study of the Monterey Peninsula Water Supply Project (MPWSP)
Executive Director Cullem indicated that the Governance Committee voted for selecting andcontracting directly with the Value Engineering firm for the design build contract to ensurepublic oversight and transparency The purpose of the VE would be to look for fatal flaws andidentification of efficiencies and reduced costs through design improvements and is mosteffectively done at 30 design build The estimated costs is not to exceed $200000 with allcosts reimbursable by Cal Am The Authority would solicit and acquire the value engineer butthe Governance Committee will select the firm Vice President Burnett indicated the TAC
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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Execution Copy May 8 2014
3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20142
reviewed and recommended the attached RFP contract and scope of work for the RFP
Director Rubio requested that the Authority incur any undue liability from the contract
President Della Sala invited public comment
Nelson Vega questioned the assurance of this project and if the timing was prematureexpressing concern regarding stranded costs David Lifland questioned if there was aperformance clause Tom Rowley spoke to Director Rubios concern regarding liability and insupport of advice from the Legal Counsel Freeman
Director Burnett spoke to the schedule and the process by which Cal Am would or would notincorporate suggestions from the VE Legal Counsel Freeman indicated that because we areinvolved in the PUC process we have to maintain the adopted schedule The performanceclause must be handled between Cal Am and the VE firm Mr Freeman further clarified thecommon local government practice for City projects to require the project to fund an EIR but theCity would contract for the services to ensure the extra layer of transparency and publicoversight and control
On a motion by Director Lucius and seconded by Director Edelen and carried by the followingvote the Authority approved authorizing the Executive Director to advertise the Request forProposal (RFP) and Scope of Work for a Value Engineering (VE) Study of the MontereyPeninsula Water Supply Project (MPWSP) if approved by the Governance Committee
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS NoneABSTAIN 0 DIRECTORS None
RECUSED 0 DIRECTORS None
2 Receive Update Discuss and Provide Recommendation on Update to the Monterey PeninsulaRegional Water Authority Work Plan
Executive Director Cullem spoke to the status of the items approved in the previously adoptedwork plan He requested direction for additions to the work plan
He noted that Monterey Peninsula Water Pollution Control Agency General Manager Israelrequested to make a full presentation to the public regarding the Ground Water ReplenishmentPure Water Monterey project to provide an update regarding the status of the project thestatus of the water negotiations the status of the settlement agreement meetings to bring the
Authority and the public up to date The Directors agreed to agendize a presentation by theMRWPCA Executive Director Cullem encouraged the public to attend educational tours of theGWR testing facility
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20143
Director Burnett requested direction on when the Authority would like to proceed to request anofficial extension of the Cease and Desist Order (CDO) from the State Water ResourcesControl Board and suggested timing for a petition be submitted in 2014
Director Rubio spoke to the definition of when the projects can be considered viable DirectorEdelen indicated it must be after the election deciding Measure O
With regard to the required permits the City of Marina requested more effort to keep the staffand the City more informed regarding the project The directors discussed the permittingschedule that the level of involvement and requested to remain informed of the timelines andparticipate when necessary
President Della Sala invited public comment
Tom Rowley spoke to the CDO extension request timing and things that need to be done priorto the request including more participation from the County of Monterey Nelson Vegarequested that the Authority not lose sight of the cost per acre foot of water and spoke to theimpacts of uncertainty of water is going to have with regard to economic development Sourcewater is the issue and cost per acre foot is paramount to a viable project Citizens are not
serviced by water too expensive to drink David Lifland spoke in support of having a successfultest well prior to the petition and questioned the hydrogeological report results
Alternate Director Lucius requested adding to the strategy of the CDO that if this body is notnecessarily submitting a request for the extension but a statement of support a coordinatedstrategy is important to demonstrate process and impact including all of the agencies andassociations voices into these different statements of support could be more powerful onerepresentative to pleased Its not just the request but the impact of statement of support TheDirectors agreed and requested that the Authority continue to pursue the work plan as writtenwith the above additional directions
3 Approve Mid-Year FY 2013-2014 Amended Budget and Approve the FY 2014-2015 Budget
Executive Director Cullem spoke to the item outlining the previously adopted budget for the2013-14 fiscal year which accounted for a carry over balance that was never realized due tothe increase of legal services expenses He indicated that the Authority would not be requiredto request additional contributions from member cities if funds outstanding from MontereyCounty are approved He called attention to the contract assistance line item for valueengineering services approved as fully reimbursable earlier in the meeting indicating that thecontract will not be issued until the fund have been received for reimbursement
Mr Cullem then outlined the anticipated expenditures for Fiscal year 2014-15 and noted that
the funds were from Monterey County have not been factored into this budget yet as it is notguaranteed however if the county agrees to the fair share contribution the budget would beamended
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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A12-04-019 MP1GW2sbfek4
- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MPRWA Minutes Thursday April 10 2014
Monterey Peninsula Regional Water Authority
Regular Meeting Minutes - Thursday April 10 20144
President Della Sala invited public comment
Neslon vega indicated that the Authority should include more funding for public outreach topromote the benefits and accomplishments of the agency The public needs to understand whatwould happen if the Authority was not created Tom Rowley suggested re-extending therequest to the County to participate in this agency He also spoke in support of Mr Vegas
comments regarding the Authority efforts to date
On motion by Director Pendergrass and seconded by Director Rubio and passed by thefollowing vote the Authority approved the staff recommendation for amending the FY 13-14budget and approving the proposed FY 14-15 operating budget as presented
AYES 6 DIRECTORSBurnett Edelen Alt Lucius Pendergrass RubioDella Sala
NOES 0 DIRECTORS NoneABSENT 0 DIRECTORS None
ABSTAIN 0 DIRECTORS NoneRECUSED 0 DIRECTORS None
ADJOURNMENT
Having no further business to conduct the meeting was adjourned at 831 pm
ATTEST
Lesley Milton Authority Clerk Chuck Della Sala President
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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Execution Copy May 8 2014
2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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Execution Copy May 8 2014
3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 4
0612
FROM Authority Clerk Milton
SUBJECT Approve and File Checks Through May 10 2014
RECOMMENDATION
It is recommended that the MPRWA approve and file the accounts payable paymentsmade during the period of March 8 2014 through April 10 2014 Total AccountsPayable for the above referenced period is $69634 It is recommended that theAuthority approve and file the below checks
DISCUSSION
At its meeting on September 12 2013 the Authority Board approved a staffrecommendation to provide the Directors a listing of general checks issued since the lastreport so that it can inspect and confirm these checks Each invoiced expense has beenreviewed and approved by the Executive Director and Finance personnel prior to paymentto insure that it conforms to the approved budget
The following checks are hereby submitted to the Authority for inspection andconfirmation
bull $6750 to Perry and Freeman For Legal Services for April and Maybull $1575 to Access Monterey Peninsulabull $1225 to Environmental Relations for Public Outreach Servicesbull $4787154 to Brownstein Hyatt Farber and Schreck for legal services invoices
from February and March 2014bull $1221262 to City of Seaside for reimbursement of overpayment of Membership
fees for website renewal feels and finance software costs
FISCAL IMPACT
The listed checks have been budgeted and paid from the various funds as appropriate
and the Budget to Actual is below and lists all checks issued to date
There are still outstanding invoices from the Monterey Peninsula Water Management
District and the County of Monterey for their fair share of the Separation Processes Inc
Services An error was identified that the City of Seaside had overpaid their annual
member fair share contribution and the above check is reimbursement of that
overpayment It is not reflected as a charge against the budget
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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A12-04-019 MP1GW2sbfek4
- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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A12-04-019 MP1GW2sbfek4
- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 5
0612
FROM Executive Director Cullem
SUBJECT Adopt Resolution Accepting the Amended Fiscal Year 2013-14 Budget andAdopting the Fiscal year 2014-15 Operating Budget
DISCUSSION
At the April 10 2014 Authority Directorrsquos meeting the Board approved amending the operating
budget for Fiscal Year 2013-14 and approving the draft operating budget for Fiscal Year 2014-
15 as presented This item is memorializing the action taking by adopting a resolution
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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EXHIBIT 1 - Amended Budget for FY 2013-14 and Budget for FY 2014-15
Statement of Net Position 2013-14 Amended Funds Funds
Budgeted Budget Received Outstanding
983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123
Carryover from FY 2012-2013 $7268 $7268 County Contributions from FY
2012-2013 $83300 $0 $83300 Membership Fees $341680 $341263 $341263
Reimbursements for SPI Contract $18562 $0 $18562
Reimbursement for VE Contract $200000 $200000
983124983151983156983137983148 983119983152983141983154983137983156983145983150983143 983122983141983158983141983150983157983141 $341680 $650393 $348531 $301862
983119983120983109983122983105983124983113983118983111 983122983109983126983109983118983125983109983123 983106983157983140983143983141983156983141983140
983105983149983141983150983140983141983140
983106983157983140983143983141983156
983109983150983139983157983149983138983141983154983141983140
983156983144983154983157 983094301983092
983106983157983140983143983141983156
983122983141983149983137983145983150983145983150983143
Administration and Clerical
Principal Office of the Authority $0 $0 $0 $0
Clerk of the Board $35000 $35000 $35000 $0
Financial Services $0 $0 $0 $0
Executive Director $94680 $90680 $90044 $636 Misc Admin Expenses $0 $0 $0
Legal Services
Board Counsel $63000 $59000 $27000 $32000
Special Counsel $100000 $186000 $186000 $0
Contract Services
Public Outreach $35000 $15000 $15000 $0
Audit Services $5000 $6700 $6700 $0
Televised Meetings $14000 $10000 $4663 $5338
Contract Services amp Studies $25000 $3000 $0 $3000
Contract SPI $20000 $35000 $34610 $390
Contract VE $0 $200000 $200000 $0
Insurance $7000 $7000 $6702 $298 Travel Expenses $5000 $1000 $0 $1000
Contingency $20000 $2000 $1657 $343
983124983119983124983105983116 983119983120983109983122983105983124983113983118983111 983109983128983120983109983118983123983109983123 $423680 $650380 $607376 $43005
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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EXHIBIT 2Based on the Authorityrsquos Joint Powers Agreement the below table is the approved Member Citbased on water usage and the Member City Annual Membership Contributions for Fiscal Year
983110983129 2019830929830851983093 983117983141983149983138983141983154 983107983145983156983161 983107983151983150983156983154983145983138983157983156983145983151983150983155
983117983141983149983138983141983154 983107983145983156983161
983105983152983152983154983151983158983141983140
983108983145983155983156983154983145983138983157983156983145983151983150
983124983151983156983137983148
983107983151983150983156983154983145983138983157983156983145983151983150983155
983110983129 2019830929830851983093
Carmel By the Sea 930 $42657
Sand City 130 $5963
City of Pacific Grove 1880 $86232
City of Seaside 2200 $100910
City of Monterey 4650 $213286
City of Del Rey Oaks 210 $9632
Total Income 10000 $458680
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 6
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Public Outreach
DISCUSSION
A verbal report will be provided by Ashely Beleny contracted public outreach consultant
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 7
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction on Presentation from theMonterey Peninsula Water Management District Regarding the Deep WaterDesal Project
DISCUSSION
A verbal report will be provided by Dave Stoldt General Manager of the Monterey Peninsula
Water Management District
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 8
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding Presentation fromMonterey Regional Water Pollution Control Agency Regarding Negotiations forSource and Product Water for the Ground Water Replenishment Project
DISCUSSION
A verbal report will be provided by Keith Israel General Manager of the Monterey Regional
Water Pollution Control Agency
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 9
0612
FROM Water Authority Counsel Donald Freeman
SUBJECT Approve Revised Governance Committee Agreement
RECOMMENDATION
It is recommended that the Water Authority approve a revision to the Amended and RestatedAgreement for the Monterey Peninsula Regional Water Supply Project Governance Committeein order to authorize the Committee or its designee to advertise for a Value EngineerConsultant and to award and administer the Contract
DISCUSSION
The revision under consideration was requested by the Governance Committee at its meeting of
April 16 2014 The Governance Committee also requested that the Water Authority andor the
Water Management District undertake the preparation and advertisement of an RFP and Scope
of Work for a VE Consultant and to make a recommendation for selection following a review of
proposals received Since time was of the essence the Water Authority accepted the task and
the RFP has now been sent out to potential consultants
The Governance Committee will make the final selection and the Water Authority will then
award and administer the contract
ATTACHMENT
-Proposed revision to the October 10 2013 Amended and Restated Agreement to form the
Monterey Peninsula Water Supply Project Governance Committee
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1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Execution Copy May 8 2014
1
AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT TO FORM THE MONTEREYPENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
THIS AMENDMENT (ldquoAmendmentrdquo) dated April 30 2014 supplements and modifies the terms andconditions of that certain Amended and Restated Agreement to Form The Monterey Peninsula Water
Supply Project Governance Committee dated November 5 2013 (ldquoAgreementrdquo) by and between theMONTEREY PENINSULA REGIONAL WATER AUTHORITY (ldquoMPRWArdquo) the MONTEREY PENINSULAWATER MANAGEMENT DISTRICT the COUNTY OF MONTEREY and the CALIFORNIA-AMERICANWATER COMPANY (ldquoCal-Amrdquo) (collectively the ldquoPartiesrdquo) The Parties agree to amend the Agreement as setforth below
1 Section IIR defining the term ldquoValue Engineerrdquo is deleted in its entirety and replaced with thefollowing
R Value Engineer The professional engineer(s) to be retained by MPRWA upon theselection of the Governance Committee to perform a value engineering analysis for theDesalination Project to potentially lower the costs of or maximize the value of theDesalination Project to Cal-Amrsquos ratepayers including matters concerning the cost
effectiveness performance reliability quality safety durability effectiveness or otherdesirable characteristics of the Desalination Project
2 Section VD Category A Paragraph 1 concerning the selection of the Value Engineer isdeleted in its entirety and replaced with the following
1 The Governance Committee shall select and the MPRWA shall retain a ValueEngineer(s) to facilitate and report on the proposed value engineering for the DesalinationProject In selecting the Value Engineer(s) the Governance Committee shall consider anyrecommended engineer submitted by any member of the Governance Committee Thismatter shall be ripe for decision before Cal-Am accepts the 30 Design from thecontractor retained for the design of the Desalination Infrastructure or at any other timethat Cal-Am intends to retain a Value Engineer for any other infrastructure constructed as
a component of the Desalination Project Cal-Am shall reimburse the MPRWA for allpayments made by MPRWA to the Value Engineer for expenses reasonably incurred inthe Value Engineerrsquos performance of the value engineering services for the DesalinationProject up to but not to exceed two hundred thousand dollars ($200000) Cal-Am shallmake such reimbursement payments within 60 days following Cal-Amrsquos receipt of a validinvoice with supporting documentation from MPRWA
3 In Section IX concerning the term and termination of the Agreement the first sentence of thissection is deleted in its entirety and replaced with the following
This Agreement shall continue in effect until the earlier of (1) March 8 2053 or (2) thedate that Cal-Am ceases to operate the Desalination Project the earlier such date to beknown as the ldquoExpiration Daterdquo
4 Section XF concerning the Parties bearing of costs is deleted in its entirety and replacedwith the following
Except as expressly set forth in this Agreement each Party shall bear its own costsrelating to the rights and obligations of each Party arising from this Agreement and itsparticipation in the Governance Committee and therefore no Party shall be entitled to anyreimbursement from another Party as a result of any provision of this Agreement
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2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Execution Copy May 8 2014
2
5 All provisions of the Agreement other than the provisions expressly amended above areunaltered by this Amendment
6 This Amendment may be executed in two or more counterparts each of which shall bedeemed and original but all of which together shall constitute one and the same instrument
IN WITNESS WHEREOF the Parties have executed this Amendment as of the date first statedabove
California-American Water Company By_______________________________Robert MacLeanPresident
Monterey Peninsula Regional Water Authority By_______________________________Chuck Della SalaPresident
Agreed as to form
By_______________________________Donald FreemanGeneral Counsel
Monterey Peninsula Water Management District By_______________________________David PendergrassChair
Agreed as to form
By_______________________________David LaredoGeneral Counsel
County of Monterey By_______________________________
Fernando ArmentaChair of the Board of Supervisors
Agreed as to form
By_______________________________Charles McKeeCounty Counsel
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3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Execution Copy May 8 2014
3
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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90381618 - 1 -
MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Monterey Peninsula Regional Water AuthorityAgenda Report
Date May 08 2014
Item No 10
0612
FROM Executive Director Cullem
SUBJECT Receive Report Discuss and Provide Direction Regarding CommissionerMichael R Peevey and ALJ Gary Weatherfords Ruling Requesting Commentson Surcharge Options and Proposals
RECOMMENDATION
Since time is of the essence Staff recommends that the Authority authorizes theExecutive Director Authority Counsel and Special Counsel to develop and submit a
response to the CPUC draft decision as well as to other responses from settling partiesby the deadline
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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MP1GW2sbfek4 522014
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
Application of California-American WaterCompany (U210W) for Approval of theMonterey Peninsula Water Supply Projectand Authorization to Recover All Presentand Future Costs in Rates
Application 12-04-019(Filed April 23 2012)
ASSIGNED COMMISSIONER RULING JOINED BY A CO-ASSIGNEDADMINISTRATIVE LAW JUDGE REQUESTING COMMENTS
ON SURCHARGE OPTIONS AND PROPOSALS
1 Summary
This Assigned Commissioner Ruling joined by a co-assigned
Administrative Law Judge requests comments of the Parties by May 12 2014
and reply comments by May 16 2014 concerning a specific surcharge proposal
prepared by the Division of Water and Audits that is set out in this ruling at
Appendix 1 The proposal would have Surcharge 2 set at 15 starting July 1
2014 30 when Surcharge 1 expires (estimated to be by November 1 2014) and
45 on January 2015 where it would remain until the desal plant is put into
service
2 Discussion1
21 Settlement Agreement
1 Portions of this ruling rely heavily on language contained in filings of the parties and
documents prepared by the Division of Water and Audits (DWA)
FILED5-02-14
1214 PM
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On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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- 2 -
On July 31 2013 the following was executed Settlement Agreement of
California-American Water Company Citizens for Public Water City of
Pacific Grove Coalition of Peninsula Businesses County of Monterey Division
of Ratepayer Advocates LandWatch Monterey County Monterey County
Farm Bureau Monterey County WaterResources Agency Monterey Peninsula
Regional Water Authority Monterey Peninsula Water Management District
Monterey Regional Water Pollution Control Agency Planning and Conservation
League Foundation Salinas Valley Water Coalition Sierra Club and Surfrider
Foundation (Settlement Agreement) It is ldquoAttachment Ardquo to the Settling Partiesrsquo
Motion to Approve Settlement Agreement filed in Application 12-04-019 on
July 31 2013 All parties to the Settlement Agreement have signed onto in this
Joint Motion except LandWatch Monterey County Monterey County Farm
Bureau Monterey Regional Water Pollution Control Agency Salinas Valley
Water Coalition Sierra Club and Surfrider Foundation who stated they are not
joining in this motion because it goes beyond the scope of their involvement in
the proceeding
22 Surcharge Background
See Appendix 3
23 Joint Motion and Its Denial
On March 14 2014 California-American Water Company (Cal Am)
Citizens for Public Water City of Pacific Grove Coalition of Peninsula
Businesses County of Monterey Monterey County Water Resources Agency
Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation filed a Joint Motion to Reduce the Special
Request I Surcharge Assigned Administrative Law Judge (ALJ) Weatherford
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- 3 -
denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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denied that motion without prejudice by an e-mail ruling2 on March 20 2014
stating
The Joint Motion filed on Friday March 14 2014 seeking areduction in Surcharge I is denied without prejudice I willbe consulting with staff concerning ratepayer impacts andsurcharge mechanisms generally and longer term relative tothis proceeding
24 Division of Water and Audits Options and Proposals
After ALJ Weatherford conferred with staff DWA developed the
surcharge options and proposals attached to this ruling as Appendix 1
The essential factors taken into account by the staff are these According tothe large settlement (at 23) Surcharge 2 is estimated to collect $715 million
(which is not the capped amount and the capped amount will be treated as
Contributions of Aid of Construction (CIAC)) The parties agreed to increase the
rate of collection of Surcharge 1 to 20 when the certificate of public convenience
and necessity (CPCN) would be issued to make for a smooth transition Cal
Ams fixed equity investment of the project is capped at 27 of the value of the
total project costs for the desal plant and the CAW-only facilities Costs of
implementing the securitization plan may be collected through Surcharge 2 in
addition to the $715 million for the plant and CAW-only facilities
The DWA has calculated that letting Surcharge 1 expire naturally and
implementing Surcharge 2 thereafter provides the least fluctuation in customer
bills increases the rate payer portion of the Monterey Peninsula Water Supply
Project (MPWSP) and decreases the total impact of the project on the rate payer
by increasing CIAC Setting Surcharge 2 at 15 starting July 1 2014 30 when
2 By this reference that informal ruling is confirmed and memorialized
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Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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Appendix 1
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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- 4 -
Surcharge 1 expires (estimated to be by November 1 2014) and 45 on
January 1 2015 where it would remain until the desal plant is put into service
accomplishes these goals
In addition to the MPWSP rates will increase around the 2nd quarter 2015
for the GRC and around the 3rd quarter for the Water Rate Adjustment
Mechanism assuming a timely processing of the advice letter
Commission precedence for surcharge collection of construction costs in
advance of construction can be found in Decision (D) 12-06-040 (San Clemente
Dam) and D11-05-002 (Klamath River Dams removal)
This Assigned Commissioner Ruling seeks comments of the Parties by
May 12 2014 and reply comments by May 16 2014 on the DWA options and
proposals set out in Appendix 1
IT IS RULED that Parties are requested to file and serve comments on the
Division of Water and Auditrsquos options and proposals contained in Appendix 1 by
May 12 2014 and file and serve reply comments by May 16 2014
Dated May 2 2014 at San Francisco California
Michael R PeeveyAssigned Commissioner
Gary WeatherfordCo-Assigned
Administrative Law Judge
s MICHAEL R PEEVEY s GARY WEATHERFORD
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Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
8122019 MPRWA Agenda Packet 05-08-2014
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
Appendix 1
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A12-04-019 MP1GW2sbfek4
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A12-04-019 MP1GW2sbfek4
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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Appendix 1
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8122019 MPRWA Agenda Packet 05-08-2014
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( En d
of
A p p en d i x
1 )
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Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 3952
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
8122019 MPRWA Agenda Packet 05-08-2014
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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A12-04-019 MP1GW2sbfek4
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httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 3952
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( En d
of
A p p en d i x
1 )
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
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8122019 MPRWA Agenda Packet 05-08-2014
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( En d
of
A p p en d i x
1 )
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
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( En d
of
A p p en d i x
1 )
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
Appendix 2
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4452
A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
Appendix 2
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- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
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- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Joint Motion
(Footnotes deleted) California-American Water Company (California American Water) Citizens for Public
Water City of Pacific Grove Coalition of Peninsula Businesses County of Monterey Monterey
County Water Resources Agency Monterey Peninsula Regional Water Authority Monterey
Peninsula Water Management District the Office of Ratepayer Advocates and Planning and
Conservation League Foundation (collectively the ldquoSettling Partiesrdquo) file this joint motion to
reduce the Special Request 1 Surcharge (ldquoSurcharge 1rdquo) Specifically the Settling Parties seek
authority for California American Water to reduce the amount of Surcharge 1 from 15 to 45
of customer bills This reduction is reasonable in light of the new Commission schedule for the
proposed Monterey Peninsula Water Supply Project (ldquoMPWSPrdquo) The reduction will also benefit
ratepayers by avoiding an unnecessary fluctuation in rates and by reducing current bills
Additionally parties have agreed that California American Water will not seek recovery of any
additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge1 in order to maximize the benefit to customers
II Legal and Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to
increase Surcharge 1 to 15 The increase was approved based on a schedule that provided for
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
Appendix 3
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- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
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- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
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- 2 -
amortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costs and asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
With the current 15 rate California American Water expects to have recovered the
costs through Surcharge 1 by Fall 2014 The extended procedural schedule however allows
California American Water to be less aggressive in recovery of preconstruction costs and
justifies reducing Surcharge 1 to 45 As shown in the attached schedule (Attachment 1) this
will still allow California American Water to recover the preconstruction costs in a timely
manner and will also smooth rate reductions during the transition from Surcharge 1 to Surcharge
2 Moreover this reduction will benefit California American Waterrsquos Monterey County District
customers by reducing current bills This relief will be helpful for all California American Water
customers but will particularly assist low-income customers facing a variety of increases
Furthermore the parties have agreed that California American Water will not seek recovery of
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
8122019 MPRWA Agenda Packet 05-08-2014
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8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
Appendix 3
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A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
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A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
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8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 3 -
any additional costs through Surcharge 1 beyond those requests currently pending before the
Commission in A12-10-003 and A13-05-017
IV Request For Timely Action
The Settling Parties request that the Commission act as soon as possible to authorize the
reduction of Surcharge 1 The sooner Surcharge 1 is reduced the greater the benefit for
California American Waterrsquos customers Furthermore since California American Water is
currently on track to recover the existing preconstruction costs by Fall 2014 under the 15 rate
a significant delay would render the issue moot Timely action on this motion will serve the
public interest
V Conclusion
Given the delay in the proceeding and the extended period for recovery of preconstruction coststhe Settling Partiesrsquo request to reduce Surcharge 1 from 15 to 45 of customer bills is
justified California American Water will still be able to recover costs in a timely manner but
customers will benefit in the meantime from a reduced surcharge on their California-American
Water Company (California American Water) Citizens for Public Water City of Pacific Grove
Coalition of Peninsula Businesses County of Monterey Monterey County Water Resources
Agency Monterey Peninsula Regional Water Authority Monterey Peninsula Water
Management District the Office of Ratepayer Advocates and Planning and Conservation
League Foundation (collectively the Settling Parties) file this joint motion to reduce the Special
Request 1 Surcharge (Surcharge 1) Specifically the Settling Parties seek authority for
California American Water to reduce the amount of Surcharge 1 from 15 to 45 of customer
bills This reduction is reasonable in light of the new Commission schedule for the proposed
Monterey Peninsula Water Supply Project (MPWSP) The reduction will also benefit ratepayers
by avoiding an unnecessary fluctuation in rates and by reducing current bills Additionally
parties have agreed that California American Water will not seek recovery of any additional
costs through Surcharge 1 beyond those requests currently pending before the Commission in
Application (A) 12-10-003 and A13-05-017 The Settling Parties request that the Commission
act as soon as possible to authorize this agreement and the corresponding reduction in Surcharge
1 in order to maximize the benefit to customers
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4652
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4752
A12-04-019 MP1GW2sbfek4
Appendix 3
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4852
A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
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A12-04-019 MP1GW2sbfek4
- 4 -
II Legal And Factual Background
In D03-09-022 the Commission authorized California American Water to track
preconstruction costs related to a long-term water supply project in a memorandum account In
D06-12-040 the Commission authorized California American Water to recover via Surcharge 1
the long-term water supply project costs that it was tracking in that memorandum account The
Commission also approved the Special Request 2 Surcharge (Surcharge 2) which would fund
the construction of a water supply solution on a pay-as-you-go basis but delayed implementation
of Surcharge 2 until the issuance of a Certificate of Public Convenience and Necessity (CPCN)
for a long-term water supply project
In D11-09-039 the Commission authorized California American Water to increase
Surcharge 1 to 15 The increase was approved based on a schedule that provided foramortization of the approximately $30 million in preconstruction costs booked in the
memorandum account by the end of 2014
In the current application for the MPWSP California American Water proposed to
continue using Surcharge 1 at the 15 rate to recover preconstruction costsand asked the
Commission to reinstate Surcharge 2 As part of the July 31 2013 Settlement Agreement the
parties agreed that Surcharge 1 will cease before Surcharge 2 collections begin allowing for a
more gradual ramping up of rates that are directly attributed to the MPWSP The parties also
agreed that the total to be collected under Surcharge 2 will be reduced in order to provide for a
smooth transition in rates from the final period under Surcharge 2 to the year 1 revenue
requirement of the desalination plant
III Justification For Relief
In its application California American Water proposed a schedule that would provide a
Commission decision on the CPCN by February 2013 That schedule was rejected and an
extended procedural schedule was adopted Most recently on January 27 2014 assigned
Administrative Law Judge Minkin extended the current schedule for the proceeding to
accommodate a delay in the environmental review process Under the new schedule a
Commission decision on the MPWSP is not expected until the first quarter of 2015 In the
meantime California American Water will continue to recover preconstruction costs through
Surcharge 1
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4652
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4752
A12-04-019 MP1GW2sbfek4
Appendix 3
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4852
A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4652
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4752
A12-04-019 MP1GW2sbfek4
Appendix 3
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4852
A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4752
A12-04-019 MP1GW2sbfek4
Appendix 3
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4852
A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4852
A12-04-019 MP1GW2sbfek4
- 1 -
Excerpt from Application
(Footnotes deleted)V MODIFICATIONS OF EXISTING RATEMAKING MECHANISMS
California American Water is requesting that the Commission (1) subcategorize the
types of costs tracked in the existing memorandum account (2) reinstitute Surcharge 2 with
modifications (3) adopt a cost cap similar to the one approved in D10-12-016 and (4) continue
the previously authorized ratemaking treatment for the California American Water-only
facilities
A Memorandum Account
For several years California American Water has been tracking costs related to a
long-term water supply solution for Monterey in a Commission-authorized memorandum
account and filing an annual application for review and recovery of the tracked costs California
American Water recovers the reviewed and approved costs through Surcharge 1 which the
Commission approved in D06-12-040 California American Water proposes to continue this
process but to subdivide the various categories of costs In order to avoid delay California
American Water requests that the Commission issue an interim decision addressing this
particular proposal Subcategory 1A will consist of costs related to the Regional Desalination
Project that California American Water incurred before the projectrsquos demise as well as the costs
to ldquounwindrdquo the Regional Desalination Project and related agreements California American
Water proposes to recover these costs through the existing annual application process established
in D08-12-034 California American Water will recover these costs through Surcharge 1A
Subcategory 1B will consist of costs related to the Monterey Peninsula Water Supply
Project including costs related to a test well and other pre-construction costs California
American Water seeks to use the existing annual review process for review and recovery of the
test well and other pre-construction costs related to the Monterey Peninsula Water Supply
Project California American Water will recover these costs through Surcharge 1B
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 4952
A12-04-019 MP1GW2sbfek4
- 2 -
It is particularly important that the Commission issue an interim decision addressing the
ability to track costs related to the test well and recover them in rates Data from this well will
assist with the design of the Monterey Peninsula Water Supply Project will assess the individual
well capacities to determine the final number of intake wells needed and will help assess the
levels of salinity California American Water seeks to proceed with the test well as soon as
possible
The current estimated cost of the test well is $5 million Although California American
Water believes that the Commissionrsquos earlier decisions authorize it to track and recover costs
related to any long-term water supply solution it is concerned parties may attempt to prevent
recovery of the test well and related pre-construction costs as a way to derail the Monterey
Peninsula Water Supply Project Therefore California American Water requests that theCommission issue an interim decision authorizing California American Water to track the costs
for the test well for the Monterey Peninsula Water Supply Project as well as all other
preconstruction costs for the Project in subcategory B of the memorandum account
An interim decision will allow California American Water to proceed with these crucial
activities and avoid delay Although California American Water believes this application along
with appendices and supporting testimony provides sufficient information to rule on its request
for interim relief if after protests and responses to the application are filed the assigned
Administrative Law Judge requires more information California American Water recommends
that the parties to this proceeding file concurrent pleadings on the issue in accordance with the
schedule provided below
B Surcharge 2
Surcharge 1 provides recovery of preconstruction costs The Commission approved
Surcharge 2 in D06-12-040 to fund construction costs on a pay-as-you-go basis27
In D06-12-040 the Commission authorized California American Water to implement
Surcharge 2 immediately after the Commission issued a CPCN for the Coastal Water Project or
an alternative long-term supply solution Initially the surcharge was to be 15 on customer
bills increasing to 30 45 and 60 respectively on July 1 and January 1 each year and was
to remain at the 60 level through completion of the approved long-term water supply project
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5052
A12-04-019 MP1GW2sbfek4
- 3 -
In D10-12-016 the Commission found that Surcharge 2 was no longer applicable
because the Regional Desalination Project would be financed by the public agencies29
However Surcharge 2 is necessary to avoid rate shock and reduces the overall cost of the
project to customers Now that California American Water will be financing and owning the
facilities reinstatement of Surcharge 2 with a few modifications is appropriate For example
while Surcharge 2 should still commence immediately after issuance of a CPCN the surcharge
should be 30 initially increase to 45 and 60 on the subsequent July 1 and January 1 and
the remain at the 60 level through completion of the Monterey Peninsula Water Supply
Project Based on the $260 million capital cost for the 90 mgd plant Surcharge 2 will collect
38 of the capital costs Based on the $213 million capital cost for the 54 mgd plant the
surcharge will collect 47 of the capital costs On May 15 of each year after approval CaliforniaAmerican Water will file an advice letter to adjust the rate downward if it estimates that the
surcharge collection will cover more than those percentages of project costs effective July 1 of
that year Surcharge 2 should remain in place until the Monterey Peninsula Water Supply Project
is in service California American Water will track the surcharge collections in a memorandum
account Since the surcharge collections will offset costs those costs should therefore not be
included in the capitalized costs and the surcharge collections should not be included as
contributions
C Desalination Facility Cost Cap
In D10-12-016 the Commission approved an overall cost cap for the Regional
Desalination Project but provided for review and recovery of reasonable cost above the cap
upon a showing that these costs were the result of extraordinary circumstances and subject to a
heightened level of scrutiny California American Water requests that the Commission take the
same approach to a cost cap for the Monterey Peninsula Water Supply Project This would create
an incentive for California American Water to manage the Project responsibly since the
Commission could easily disallow unreasonable costs but would avoid unfairly penalizing
California American Water for increased costs beyond its control Although California American
Water is confident that its cost estimates are accurate based on the information currently
available a number of factors beyond California American Waterrsquos control could still affect the
cost estimate including escalating costs of labor and materials actions mandated by other
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- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5152
A12-04-019 MP1GW2sbfek4
- 4 -
regulatory agencies and other project unknowns California American Water requests that the
Commission adopt a $2812 cost cap for the 90 mgd facility and a $2271 cost cap for the 54
mgd facility The cost caps include the estimated capital expenditures capitalized operating
expenses and allowance for funds used during construction (ldquoAFUDCrdquo)
D California American Water-Only Facilities
In D10-12-016 the Commission approved with minor modification to the requested
interest rate the exact request made by the settling parties with respect to the California
American Water-only facilities The Commission established a $106875 cost cap for the
California American Water facilities with recovery of costs above the cap upon a showing of
extraordinary circumstances and subject to heightened scrutiny The Commission approved
treatment of the California American Water-only facilities as used and useful as soon as they areconstructed even if the Regional Desalination Project was delayed With the exception of the
Transfer Pipeline California American Water was to record the total cost of the California
American Water-only facilities subject to the capital cost cap and AFUDC calculation that are
completed and used to provide service to customers in its Utility Plant In Service (ldquoUPISrdquo)
Account and the total costs of the projects that are not providing service to customers in the
Construction Work in Progress (ldquoCWIPrdquo) Account Under D10-12-016 the ratebase for the
California American Water-only facilities was to be calculated by determining the sum of UPIS
and CWIP less any grant funds and less any accumulated depreciation
The Commission authorized California American Water to file a Tier 2 advice letter on
May 15 and November 15 each year to include all prudently expended costs related to
construction of the California American Water-only facilities into rate base as either CWIP or
UPIS with the increase in January 1 or July 1 regardless of the status of the review The
Commission authorized California American Water to earn AFUDC on all project costs until
they were in ratebase and found that it was appropriate to adopt an initial AFUDC rate that is
representative of current rates and allow this rate to be trued-up to reflect actual carrying costs
California American Water requests that the Commission adopt the same treatment for
the California American Water-only facilities in this proceeding that it approved in D10-12-016
with clarifications to the process set forth in the Direct Testimony of David P Stephenson
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252
8122019 MPRWA Agenda Packet 05-08-2014
httpslidepdfcomreaderfullmprwa-agenda-packet-05-08-2014 5252