M I N U TE S MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA) Regular Meeting 7:00 PM, Thursday, June 13, 2013 COUNCIL

CHAMBER FEW MEMORIAL HALL MONTEREY, CALIFORNIA Directors Present: Directors Absent: Staff Present: ROLL CALL PLEDGE OF ALLEGIANCE REPORTS FROM BOARD DIRECTORS AND STAFF President Della Sala opened the meeting at 7:15 p.m. recognizing that Attorney Bill Connors will be the acting Legal Council for this meeting. He then spoke to the recent renovation of the Council Chamber which was completed to be in compliance with the American's with Disabilities Act. President Della Sala then invited reports from the Directors and staff. Director Pendergrass spoke to a press release regarding a lawsuit filed against the Monterey Peninsula Water Management District by the Monterey Peninsula Taxpayers Association. The lawsuit alleged the MPWMD has been using collected fees for a different purpose than was intended. Director Burnett reported progress working with the permitting agencies for the Monterey Peninsula Water Supply Project (MPWSP) in advance of the California Public Utilities Commission decision. He noted that it was important to parallel the process of permits as much as possible, then spoke to a meeting on Monday June 10, 2013 with relevant State and Federal agencies. He reported making progress toward achieving permits for the test well in time for the construction to begin November 1, 2013. PUBLIC COMMENTS President Della Sala opened the floor for public comment for items not on the agenda. David Lifland questioned the location of the proposed test wells for the MPWSP and questioned what data has been collected to date for alternative areas such as Dana Point. With no further requests to speak, public comment was closed. CONSENT ITEMS 1. Approve Future Meeting Dates and Agenda Items Action: Approved On a motion by Director Pendergrass, seconded by Director Burnett and carried by the following vote, the Monterey Peninsula Regional Water Authority approved the proposed future meeting dates. AYES: NOES: 4 0 DIRECTORS: DIRECTORS: Burnett, Kampe, Pendergrass, Della Sala None Burnett, Kampe, Pendergrass, Della Sala Edelen, Rubio Alt Legal Counsel, Clerk of the Authority, Executive Director

MPRWA Minutes ABSENT: ABSTAIN: RECUSED: 2. 2 0 0 DIRECTORS: DIRECTORS: DIRECTORS: Edelen, Rubio None None

Thursday, June 13, 2013

Receive Financial Update and Authorize Staff to Contract for Financial Services Audit for Fiscal Year 2012-13 Action: Approved On a motion by Director Burnett, seconded by Director Kampe and carried by the following vote, the Monterey Peninsula Regional Water Authority authorized staff to contract for a financial services audit for Fiscal Year 2012-13 to be completed by November 30, 2013: AYES: NOES: ABSENT: ABSTAIN: RECUSED: 4 0 2 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Kampe, Pendergrass, Della Sala None Edelen, Rubio None None

3.

Review Final Recommendations for Draft Request for Proposal for The Monterey Peninsula Water Supply Project Action: Received Report Director Burnett reported on this item and indicated that the final document is consistent with Authority direction. Director Pendergrass commended the ability to participate, with an active, legitimate Governance Committee. He further commented that the cooperation between the Governance Committee and Cal Am is notable. President Della Sala opened the item for public comment. Nelson Vega expressed concern that the Authority wants the lowest price water solution but demanding prevailing wage increases the price and could add 20% to the cost of the project. He requested the Authority look at the constituency for how many people are earning prevailing wage. With no further requests to speak, public comment was closed. Director Burnett responded to Mr. Vega's concern that this element is important because some of the sources of financing the Authority is requiring requires a prevailing wage component. Director Kampe questioned how the goal for local hiring was included, and asked if a local hiring requirement would limit the firm's ability to hire outside of the region if the expertise was not available locally. Alternate Director Ian Oglesby arrived at 7:29 p.m. END OF CONSENT AGENDA APPROVAL OF MINUTES

4.

May 23, 2013 Action: Approved On a motion by Director Pendergrass seconded by Director Oglesby and carried by the following vote, the Monterey Peninsula Regional Water Authority approved the minutes of May 23, 2013: Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, June 13, 2013 2

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AYES: NOES: ABSENT: ABSTAIN: RECUSED:

4 0 1 1 0

DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS:

Burnett, Pendergrass, Oglesby, Della Sala None Edelen Kampe None

AGENDA ITEMS 5. Receive Report on California Public Utilities Hosted Ground Water Replenishment Workshop on June 12, 2013 Director Burnett spoke regarding the Groundwater Replenishment workshop sponsored by the California Public Utilities Commission on June 12, 2013. He reported the purpose was to further define the criteria to be used to make the GWR recommendation and to determine if GWR is to be included in the water solution portfolio. Director Burnett spoke to the details regarding the methodology and timing for approval and inclusion of the GWR project. He also noted that it is necessary to determine if GWR is viable so Cal Am can determine what size plant they can build, which also impacts the outcome of the water purchase agreement. Director Burnett outlined the eight criteria for the GWR recommendation and the changes made as a result of the workshop. A red line version was included in the agenda packet and for the public. He noted that a Tier II advice letter cannot have any discretion and all but the below three proposed criteria will met the check box test of the Tier II letter: 1. Water purchase agreement 2. Debt equivalency 3. Cost estimated first year revenue requirement to pay for the water from the GWR project. Director Burnett then answered questions from the Directors. President Della Sala opened the item to public comment. Nelson Vega spoke to the item and questioned the cost impacts for inclusion of the GWR project. He urged the Directors to focus on the cheapest project and the solutions that deliver the required amount of water. John Narigi, TAC Member and representative of the Coalition of Peninsula Businesses distributed a memo representing the Coalition of Peninsula Businesses. He reported attending the workshop and concurred with the recap by Chair Burnett, but regrettably indicated that he does not believe the GWR project will come to fruition in time. He then expressed frustration that requests for information submitted to the MRWPCA were not adequately answered. He then spoke in support of building a larger size desal facility to ensure adequate capacity and urged the authority and other agencies to listen to the business community. David Lifland questioned the proposed source water for the desal project. Having no more requests to speak, President Della Sala closed public comment. Director Burnett responded to public comment questions clarifying where the proposed water supply would come from and reiterated the need for a portfolio approach. He then spoke to Mr. Narigi's comments and encouraged MRWPCA to increase efforts to answer questions of the community and the businesses.

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President Della Sala requested clarification on the request to review the revenue requirement instead of the cost of water. Director Burnett responded that they are not interchangeable due to accounting and tax implications. Cost per acre foot calculations do not account for issues such as purchase agreements recorded as debt, which require a debt equity balancing and could raise the revenue requirement. Director Kampe expressed concern that the small water projects gives the impression that it subtracts from the total capacity of the desal facility, but instead could be operational sooner than the other projects and could demonstrate progress to the State Water Resources Control Board for compliance with the CDO and the whole peninsula will benefit. 6. Receive Update and Provide Direction Regarding Draft Power Purchase Agreement Term Sheet Action: Received Update and Discussed Executive Director Cullem reported about recent meetings he facilitated to develop a power sales agreement between the MPWSP and the Monterey Regional Waste Management District. He noted that William Merry, General Manager for the District spoke to the TAC on June 3, 2013 and reminded the Authority that the District has a fiduciary responsibility to their Board of Directors to sell energy at the best market price available .Mr. Cullem explained that the ultimate agreement would not be a power purchase agreement as originally discussed because of the possibility to trigger a debt equivalency issues for Cal Am. Instead they are considering a power sales agreement, which would allow the Cal Am to bypass the debt equivalency issue. He noted the next meeting will be on July 8, 2013 and the Authority will facilitate moving forward and working towards an MOU and the final agreement. Mr. Cullem then answered questions from the Directors. President Della Sala questioned what the range would be for fair market value for energy and Executive Director Cullem indicated it could be approximately $.15 per kwh but noted there are options for savings in many places, including a clean power component. He explained the need for clean, stable power for deal operations and indicated that the District may provide cleaner power than PGE. President Della Sala opened the item for public comment. Nelson Vega questioned the legal authority for the District to transmit power and questioned if PG& E had any exclusive franchise rights to transmissions. He questioned if PG&E would seek into the water distribution or desalination business and expressed concern there is a huge overlap with services and it may affect prices. Having no additional requests to speak, President Della Sala closed public comment. Executive Director Cullem responded regarding who is permitted to sell utilities and noted that private sellers are regulated by the CPUC. He further explained that power producers are allowed to sell power to the grid, but what profit can be made by it is determined by who is willing to buy it. President Della Sala indicated that there is more negotiation needed and requested to be kept apprised of developments and to provide the Authority information about current market rate power costs.

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Thursday, June 13, 2013

Receive Report and Provide Guidance Regarding Reproduction of Water Article And Other Outreach Opportunities Action: Report Received and Direction Provided Executive Director Cullem spoke to the public outreach line item of the adopted Fiscal Year 2013-14 budget and then discussed an article published on July 2, 2013 in the Monterey Herald titled The Path To Your Tap. He requested permission to reproduce the article as a cost effective, informational and non partisan document. He also indicated he will be looking for additional opportunities for cost effective public outreach. Mr. Cullem then requested direction from the Directors. President Della Sala questioned the Authoritys desires for reproduction of this article. He then opened public comment and had no requests to speak. Director Pendergrass requested the article be made available on the Authoritys website. The Directors agreed to the development of a marketing piece that includes the article, some frequently asked questions, as well as the adopted position statement. Alternate Director Oglesby confirmed the need for collaboration and indicated that he supports the reproduction of marketing materials as long as they include the Authoritys policy positions. The Directors agreed and requested staff to price the reproduction cost for 1000 copies to be made available, as well as requested staff to contact the Monterey Peninsula Water Management District and the Monterey Regional Water Pollution Control District to discuss collaborative outreach efforts.

8.

Receive, Update, and Discuss MPRWAs Position on Issues for MPRWAs Participation and Decision-Making with Respect to California Public Utilities Commission Settlement Proceedings in A.12.04.019 Action: Received Update and Discussed Director Burnett reported that since the original adoption of the Position Statement the Authority has adopted additional policies that should be incorporated. He requested the Directors to adopt the presented revised position statement reflecting the totality of the Authoritys position with respect to the portfolio of the water solution projects. Director Burnett spoke to the suggested changes and the general topics are listed below:

Benefits of a portfolio approach Adopted concept of a service connection fee Adopted governance committee agreement Defined more clearly what Significant contribution entails Clarify the difference between the two facility sizes Water Allocation - the size project is for engineering purposes but the allocation decisions will be made locally Need to produce a new estimate of what general plan build out will be, outdated Elaborate more on the position for the Pacific Grove Water Projects Project Cost Control and appropriate use of surcharge two Contingency Planning: previous statement was for source water intake but is key variable and we should keep approach focused, but that would recognize other parts of the project that would benefit from contingency planning as well.

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President Della Sala opened the item for public comment. David Lifland requested clarification about the contingency plans, proposed well types and the locations. Director Burnett responded that the contingency statement on the proposed position statement includes three alternate locations for wells and for each location both slant and Rainey wells would be tested. John Narigi requested clarification of the intent under additive considerations regarding general plan build out. Director Burnett responded that the Authority requested the Environmental Impact Report to include a full general plant build out. He then suggested that the Authority should develop a trigger for when discussion should begin to develop a new water supply so the community does not face a water shortages in the future. Mr. Narigi then questioned if the Governance Committee would have oversight over the GWR project. Nelson Vega suggested adopting a position of support over the larger desal facility size with the option of deferring to smaller project size if other projects come online. He then reminded the Directors that the mission of the Authority was to meet the CDO in the most cost effective way. Having no additional requests to speak, President Della Sala closed public comment and spoke to Mr. Vega's comments regarding the Authority's mission and assured him that there are many variables but the Authority is still looking for most cost effective solution. He also assured him of the need to show progress on other fronts if the community is to have leniency with regard to the CDO. Director Oglesby thanked the public for their questions and for their participation. He reminded the Authority that if this Agency and the Governance Committee was not in place, these discussions and decisions would take place at the PUC and there would be no local control. He thanked the Authority for the ability to allow the public to vet to us and thinks this Agency is making significant progress for affecting change from Cal Am to compromise with some of the cost and procedures, in part, due to public input. Director Burnett then suggested an amendment to the document under additional considerations to identify criteria that would trigger a need to begin discussions to expand existing water projects to avoid a similar future water shortage. The Directors then discussed the need for such an amendment and Director Pendergrass made a motion to adopt Director Burnetts statement. The Directors discussed, modified the statement and came to an agreement on an amended statement. On a motion by Member Pendergass and seconded by Member Oglesby and passed by the following vote, the MPRWA voted to adopt the amended positions statement as presented with the following two additions: Under Additive Considerations: Water Allocation: The Authority recognizes that future circumstances may trigger a need for review of future water supply needs for the Peninsula to either expand or develop a new water supply to avoid future pending shortage situations. The Authority will request Cal Am to initiate a process to address the adequacy of the water supply to meet the future service obligations of Cal Am customers as defined by the California Public Utilities Commission. Under Condition #1: Cal Am Must accept a significant Contribution of public funds: Cal Am's traditional financing entails a blend of 53% equity and 47% debt. A significant public contribution (combined with Surcharge 2) should be of sufficient size to reduce Cal Am's equity to approximately half that much (26 to 27%). Monterey Peninsula Regional Water Authority Regular Meeting Minutes - Thursday, June 13, 2013 6

MPRWA Minutes AYES: NOES: ABSENT: ABSTAIN: RECUSED: 5 0 1 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS:

Thursday, June 13, 2013 Burnett, Kampe, Pendergrass, Oglesby, Della Sala None Edelen None None

ADJOURN TO CLOSED SESSION President Della Sala invited public comments for the closed session item and had no requests to speak. He then adjourned the meeting to closed session at 9:20 p.m. 9. Conference with Legal Counsel Existing Litigation, Gov. Code, section 54956.9 California Public Utilities Commission, In the Matter of Application of California-American Water Company (U210W) for Approval of the Monterey Peninsula Water Supply Project and Authorization to Recover All Present and Future Costs in Rates, A.12.04.019, Filed April 23, 2012 Action: None Taken Legal Counsel Connors reported that the Authority received a report and took no action. ADJOURN TO OPEN SESSION 10. Receive, Update, and Discuss MPRWAs Position on Issues Identified During Closed Session for MPRWAs Participation and Decision-Making with Respect to California Public Utilities Commission Settlement Proceedings in A.12.04.019 Action: None Taken ADJOURNMENT With no further business to discuss, President Della Sala adjourned the meeting at 10:12 p.m. ATTEST:

Lesley Milton, Clerk of the Authority

MPRWA President

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