M I N U TE S MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA) Regular Meeting 6:00 PM, Thursday, January 10, 2013 FEW

MEMORIAL HALL OF RECORDS MONTEREY, CALIFORNIA Directors Present: Directors Absent: Staff Present: ROLL CALL PLEDGE OF ALLEGIANCE REPORTS FROM BOARD DIRECTORS AND STAFF Director Burnett reported that he will be traveling to Sacramento next week to meet with representatives from The State Water Resources Quality Control Board. Director Rubio reported on a meeting he had with a Cal Am representative regarding a general issues update since he took office in November. Interim Executive Director Meurer reported on the hiring status of the Executive Director position. The Authority gave instructions that the selected person would become an employee of City of Monterey and to facilitate that, the City needs to create a position, which will be on the January 15, 2013 City Council agenda. If approved, risk management will need to be resolved. This position is not in the Authority adopted budget but is on the agenda this evening. Appointment can be made when the position administration is resolved. PUBLIC COMMENTS President Della Sala invited public comments for items not on the agenda. Nelson Vega expressed concern about new TAC appointments from the farm interest. David Armanasco spoke representing Deep Water Desal to inform the Authority that the project received confirmation from California State Lands Commission the contract was executed and there have been discussions about becoming a lead agency for CEQA studies. Bill Hood questioned continued discussions regarding governance asking what the Authority is trying to accomplish. Tom Rowley speaking as a citizen, spoke about the January 2, 2013 City of Monterey City Council meeting indicating the action taken was not fully understood by the councilmembers and encouraged a review of the minutes before the resolution was formalized. Sue McCloud requested documents be published with enough time for the public to review them prior to the meeting. Safwat Malek spoke to Mr. Rowleys comments requesting the Authority to focus on both lowest cost water as well as ownership. With no further requests to speak, President Della Sala closed public comment and spoke to Mr. Hoods comment indicating the Authority is seeking the most cost effective project to deliver water before the cease and desist order is in effect and ownership of the plant has not been determined by this body. He also reiterated that the Authority has not made a recommendation to endorse one project but hopes to before the February 22, 2013 deadline. Director Edelen commented about published research about the benefits of public vs. private ownership. The results showed ownership was inconclusive made no significant difference. Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None Interim Executive Director, Legal Counsel, Clerk to the Authority

MPRWA Minutes APPROVAL OF MINUTES 1. December 27, 2012 Action: Approved

Thursday, January 10, 2013

On a motion by Director Rubio, seconded by Director Pendergrass and carried by the following vote, the MPRWA approved the October 15, 2012 minutes: AYES: NOES: ABSENT: ABSTAIN: RECUSED: 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

AGENDA ITEMS 2. Receive Budget Update and Authorize Changes to the July 27, 2012 Adopted Budget Action: Discussed, Authorized and Passed Resolution 13-001 Interim Director Meurer presented the report and verbalized the needs for requesting the budget adjustments based on the Authoritys additional requests for services. The largest cost items are that of the Executive Director position and legal services. The total amended budget will require an increase of $172,000 and distributed by allocations previously established based on water usage. Draft staff reports were sent to the City managers and no comments were returned. Staff will forward action taken tonight to the member City Managers for additional appropriation if necessary. Mr. Meurer indicated that if the County of Monterey is added to the JPA the allocations would change, however since they have not been formally adopted, their portion cannot be included in their assessment. Mr. Meurer answered questions from the Directors. President Della Sala opened the item for public comment. Nelson Vega questioned how long the Authority expects expenses for this Authority to be incurred. Mr. Meurer responded to this question that the answer will be driven by which project is selected and what is the ultimate governance of that project. President Della Sala also responded that the Authority will move forward and take necessary steps to avoid duplication of efforts until the Authority is no longer needed. With no more requests to speak, President Della Sala closed public comment. On a motion by Director Edelen, seconded by Director Burnett and carried by the following vote, the MPRWA agreed with the staff recommendation and authorized changes to the July 27, 2012 adopted budget and passed resolution 13-001. AYES: NOES: ABSENT: ABSTAIN: RECUSED: 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

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Discuss and Provide Direction on Modifications to the October 1, 2012 Governance and Financing Proposal Action: Discussed and Approved Director Burnett delivered a recap of the process the Authority involved to attain public participation in the governance of the Cal Am project. The purpose tonight was to see if the ad hoc committee is fulfilling the goals of the Authority. The Ad Hoc committee recommends formulating the proposal into a tier two advice letter, to be submitted by Cal Am to the PUC which, if not responded to within 30 days, it goes into effect. Director Burnett answered questions of the Authority. Director Edelen questioned what aspects of the proposal Cal Am is opposed to. Director Burnett responded that there are no deal breakers but noted changes made from the previous proposal including the approval of change orders over $1 million moved to Category B. Also, provisions for confidentiality agreements were not taken out because it does not enable us to have transparency to the public. The Authority goal will be to have many of the provisions of public agencies apply to ensure transparency. Director Pendergrass expressed concerns about the category B issue that Cal Am can exercise a veto right. President Della Sala clarified that they do not have veto power in elements outside of category B. Director Burnett justified some level of veto rights that responsibility must contain a level of authority to facilitate and deliver as well as to be held accountable for the responsibility. Director Kampe questioned the level of governance during the operations phase, then questioned what the process is for assigning categories for undefined or unknown products. What the methodology is for identifying and dealing with the unanticipated. Director Burnett confirmed it is only through the design-build phase and indicated the goal is to have the Authority facilitate this period only and then disband. President Della Sala opened the item for public comment. Bill Hood talked about the impact of the perception of what the Authority is discussing and indicated the Authority is devoting too much time to a project that will be more expensive. He then commented that the message is not being communicated in an understandable way to the public but appears to focus too much on Cal Am instead of other viable alternatives. Nelson Vega spoke to the fact that the responsibility of the PUC is to govern. He then reminded the Authority of the voter turnout that declined the public ownership of water. Dale Haikus spoke against having a veto clause. Rudy Fischer spoke to section B6, aesthetic attributes indicating it is an unnecessary category and agreed with Mayor Pendergrass regarding the veto option and encouraged a decision to be made about facility sizing. Doug Wilhelm requested the Authority to consider an agreement similar to the Poseidon project. Safwat Malek expressed his desire and position for public ownership. Jim Cullem encouraged the Authority to ask the CPUC to demand the option to buy the facility at the end of the construction. President Della Sala closed public comment and Director Burnett responded to each comment made by the public then brought the discussion back to the board.

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Director Kampe expressed a need for a timely disagreement resolution process to keep the process moving but allows all parties to specify details, especially for unforeseen topics. The Authority agreed to include language on the unforeseen items, will attempt to forecast others the governance committee will have charge over and will attempt to reword the veto issue. Director Rubio indicated a true public partnership would be significantly different and since we are not adding our own risk we must inject ourselves into the private project. He encouraged the issue of facility sizing to be decided before hand and thanked the Ad Hoc committee Directors for all their work and efforts on this document. He agreed that the word veto has negative connotation although the intent is good. President Della Sala closed discussion on the governance aspect and opened discussion on the financing portion of the agenda item. Director Burnett discussed the position of the Authority that if there was public financing available, the PUC should require Cal Am to utilize those funds. The public financing option for the Cal Am project would proceed based on the following principles: It cannot make the project more expensive It cannot delay the project Public financing would not create an adverse affect on ratepayer communities outside of the Monterey Peninsula There be no share holder effects except reduced shareholder equity There be no need for a Cal Am specific credit rating There be no change to the debt equity ratio There be no change to the authorized rate of return, authorized by the PUC

Director Rubio questioned the ability to participate financially and if that will impact the proposed governance structure. Director Burnett responded that a public contribution would be important because ratepayers stand to save a significant amount of money with the public contribution. Kampe questioned where the money will come from and what the repayment expectation will be and indicated there should be a clear record of recovery of costs. Carmel Alternate Director and Ad Hoc Committee member Ken Talmage responded that the stranded costs will be taken care of by the surcharge. The public financing does not come into play until after the high risk period and assured the Directors that this conversation is why the Authority has authorized hiring a Financial Consultant. The financing discussion drives the governance discussion. President Della Sala invited public comment on the financing portion of the agenda item. Nelson Vega suggested that the system be set up that those that use the most water should pay the most. With no further requests to speak, President Della Sala closed public comment. Director Burnett explained the importance of instilling a backstop into the agreement in the event Cal Am becomes bankrupt. If the funding agency is not able to service the bonds, it will take on the credit rating of Cal am, instead instilling a backstop will vie down the interest rate to a public agency interest level.

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On a motion by Director Rubio, seconded by Director Kampe and passed by the following vote, the MPRWA approved to presented guiding principles with two amendments, remove the item about the stock holders, add the item about the debt service based on a user fee on the water bill but backstopped. AYES: NOES: ABSENT: ABSTAIN: RECUSED: 4. 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

Accept and Review Final Report: Evaluation of Seawater Desalination Projects Action: Accepted Report Director Burnett reported that the TAC reviewed the item and comments received were regarding the financial tables including the revenue requirements and the cost per acre foot and requested the Authority receive the report. President Della Sala opened public comment on the agenda item and with no requests to speak and no discussion from the Directors, closed public comment and proceeded to the next agenda item.

5.

Authorize Expenditure for Professional Agreement for Financial Services Action: Authorized and Passed Resolution 13-002 Legal counsel Freeman indicated adopting the resolution will memorialize the action taken at the December 24, 2012 meeting to approve a professional services agreement. President Della Sala opened public comment on item number five and had no requests to speak. On a motion by Director Kampe, and seconded by Director Pendergrass and approved by the following vote, the MPRWA approved the resolution as written authorizing expenditures for a professional agreement for financial services and adopted resolution 13-002. AYES: NOES: ABSENT: ABSTAIN: RECUSED: 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

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Review TAC Recommendation of State Water Board Memo Regarding Water Rights and Provide Direction Action: Discussed and Tabled Director Burnett introduced the item indicating the TAC discussed the memo, including how the agricultural community is dissatisfied and points to Tim Durbins testimony as well as the Salinas Valley Water Coalition letter. He reported that Supervisor Potter offered to convene a regular meeting with representation between the Peninsula and the agricultural community to work through the water rights issues. Director Burnett urged the Authority to be careful about involvement in the water right issue and thinks Supervisor Potter is well suited to take a lead role. Director Burnett is not recommending any action at this time. President Della Sala opened public comment on this item. Tom Rowley spoke to his dissatisfaction with the PUC order of operations and processes and indicated that the water rights need to be resolved before any project can be approved. Pursuing a project without water rights in place will result in legal action before approval can be given, but should be looking at which project misses the deadline by the least. Nelson Vega spoke in support of Mr. Rowleys comments about water rights and urged looking for an alternate source of water. With no further requests to speak, President Della Sala closed public comment. On a motion by Director Rubio and seconded by Director Edelen, the MPRWA agreed to table this item. AYES: NOES: ABSENT: ABSTAIN: RECUSED: 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

7.

Discuss and Provide Direction Regarding Framework for Decision Making for the February 22, 2013 Public Utilities Commission Testimony on Desalination Project Action: Discussed and Provided Direction Director Burnett introduced the item indicating that in order to direct staff in the testimony to the PUC on February 22, 2013 the Authority must make a decision on which project to endorse. He said great information is available and there has been great interaction from the public. By using the draft matrix as a tool, the Authority may be able to more easily compare the different projects in order to make an informed decision. Director Burnett requested feedback on the matrix to ensure all needed information is addressed. The Matrix lists the three projects with the criteria and variables for each project and can be completed with information provided by Authority hired consultants as well as other recent reports. President Della Sala requested TAC member Bill Reichmuth review the document categories for completeness, then opened the item for public comment.

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Nelson Vega suggested putting things into a decision tree. Categorize them in a form that will eliminate undesirable projects and questioned if Deep Water Desal was still a viable project. Tom Rowley suggested that all land use agencies should be represented on the water management district and the Authority should request reconfiguration to include direct representation from the six peninsula cities and the county. Ken Talmage recommended it should also include a risk assessment and indicates a judgment call is based on the assessment of both the risks and the assumptions. Rudy Fischer encouraged the Authority to have an alternate plan in the event the Cal Am project fails and encouraged the review of all projects to be able to take advantage of as an alternate. Sue McCloud questioned the purpose of the document and said it is not do the projects justice due to its brevity, specifically for permitting, assuming no lawsuits. She then questioned the status of the Peoples Moss Landing Desal project and asked if that changes the SPI report. Tom Frutchey spoke to Ms. McClouds question indicating there is no new management of the Peoples project, but the decision is to be made tomorrow. With no further requests to speak, President Della Sala closed public comment. The Directors discussed the process for filling out the matrix and making a decision. Interim Director Meurer advised that there will be no correct answer and that each project should have the opportunity to make their case before the Authority and the public. The process to allow the public to speak will be almost as important as the decision itself. Director Rubio spoke in support of Meurers comments. Mr. Talmage suggested that there are three versions of the matrix that be completed. One by the TAC, one by the SPI Consultant and one by the MPWMD. With the magnitude of the decision, it will be important to receive data from the three sources. Mr. Talmages suggestion was approved unanimously by the Authority. Director Burnett indicated they will request the matrix to be reviewed and returned by January 22, 2014. ADJOURNMENT With no further business on this agenda President Della Sala adjourned the meeting at 10:05 p.m. ATTEST:

Lesley Milton, Clerk of the Authority

MPRWA President

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