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Agenda

Monterey Peninsula Regional Water Authority (MPRWA)
Regular Meeting

7:00 PM, Thursday, March 14, 2013
Carmel By The Sea City Hall
East side of Monte Verde Street
between Ocean and Seventh Avenues
City of Carmel-By-the-Sea, California


ROLL CALL

PLEDGE OF ALLEGIANCE

REPORTS FROM BOARD DIRECTORS AND STAFF

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

APPROVAL OF MINUTES

1. February 14, 2013

2. February 28, 2013

AGENDA ITEMS

3. Review and Provide Recommendations on Cal Am Draft Outline of RFQ and List of
Qualifications and Selection Criteria - Burnett

4. Report from Cal-Am Regarding Test Well Design, Development and Permitting - Bowie

5. Receive Report on First Governance Committee Meeting and Provide Direction - Burnett

6. Review of Mid-Year Budget and Projections for Remainder of Fiscal Year - Reichmuth

7. Review Rebuttal Testimony Submitted To California Public Utilities Commission for
Application (A- 12-04-019) and Provide Direction - Burnett

ADJOURNMENT




Thursday, March 14, 2013
2


The Monterey Peninsula Regional Water Authority is committed to include the disabled in all of
its services, programs and activities. For disabled access, dial 711 to use the California Relay
Service (CRS) to speak to staff at the Monterey City Clerk’s Office, the Principal Office of the
Authority. CRS offers free text-to-speech, speech-to-speech, and Spanish-language services
24 hours a day, 7 days a week. If you require a hearing amplification device to attend a
meeting, dial 711 to use CRS to talk to staff at the Monterey City Clerk’s 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 public
inspection during the meeting or may be requested from the Monterey City Clerk’s Office at 580
Pacific St, Room 6, Monterey, CA 93940. This agenda is posted in compliance with California
Government Code Section 54954.2(a) or Section 54956.

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 1.



№06/12
FROM: Clerk to the Authority

SUBJECT: February 14, 2013

RECCOMENDATION:
There is no written material for this item. Draft Minutes will be available at or before the meeting.

MPRWA Meeting, 3/14/2013 , Ìtem No. 1., Ìtem Page 1, Packet Page 1

MI NUTES
MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA)
Regular Meeting
7:00 PM, Thursday, February 28, 2013
City Hall, City of Carmel By the Sea


Directors Present: Edelen, Burnett Kampe, 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 7:00 p.m.

PLEDGE OF ALLEGIANCE

REPORTS FROM BOARD DIRECTORS AND STAFF
Vice President Burnett reported about a meeting with the Coastal Commission and Cal Am, and
Executive Director Reichmuth last week discussing the permitting process for the Monterey
Peninsula Water Supply Project test wells as well as for the entire facility. Expectation given by
the Director indicated the permitting application does not have to wait until the CPUC decision is
released. Vice President Burnett will schedule regular meetings with the Coastal Commission
and Cal Am and report back to the Authority. Director Edelen expressed support for meetings
with the Coastal Commission that if in the future there is a need to request a deadline extension
for the Cease and Desist Order, Authority efforts will be noted. Vice President Burnett added
that under the tolling agreement for the CDO litigation, there was a commitment to meet with the
State Water Resources Control Board and that he and TAC Member Stoldt have initiated
requests for regular meetings.
Director Pendergrass reported that the Monterey Regional Water Pollution Control Authority
(MRWPCA) unanimously voted to move forward with hiring an Environmental Consultant for the
Ground Water Replenishment Project. He then wished City of Salinas good luck with the Deep
Water Desal Project.
Executive Director Reichmuth reported on attending a planning workshop/feasibility study
hosted by MRWPCA and had a chance to reiterate the Authority policy for the portfolio
approach and compliance with lots of record, economic bounce back, etc. He reported that
water rights issues were given much attention and that Vice President Burnett attended and
MPRWA Meeting, 3/14/2013 , Ìtem No. 2., Ìtem Page 1, Packet Page 3
spoke to the timeline to pull off a successful water supply project. This meeting will lead to a
scoping meeting for the environmental work for GWR.
PUBLIC COMMENTS
President Della Sala invited public comments for items not on the agenda. Tom Rowley
questioned the status of the Environmental Impact Report (EIR) for the Deep Water Desal
Project and requested routine updates on timeline the MPWSP as well as the project
alternatives. He then congratulated the Authority on their 1 year anniversary.
Ron Cohen posed the following questions regarding the deliberative document;
• Asked if the CPUC does not allow the governance agreement does that mean the
Authority is no longer going to support the project?
• Questioned alternate intake strategies and asked if that included Moss Landing,
• Questioned consideration of tapping the power plant as an interim solution, not
necessarily permanent,
• Questioned if the People’s Project could be defined as limited in size therefore would go
through easier review process,
• Questioned source water intake and why the authority is not more adamant about
infiltration gallery and abandoning slant wells
• Questioned discussions for bringing costs down, and asked if the same applied for the
other two projects and could the costs be reduced
Lastly, he said that ratepayers are currently paying Cal Am $4,500 per acre foot for water today,
which is prior to desal and commented that Cal Am is the most inefficient water company in the
State.
Director Kamp arrived at 7:15 p.m.
Director Burnett spoke to Mr. Cohen’s comments indicating that the Authority has not taken a
position on where the contribution will go but the Authority and the Monterey Peninsula Water
Management District are working through the details with the hired financial consultant. There
are no restrictions on the public contribution at this time requiring it be applied to one part of the
project, but some may come out of the process from the expert opinion. Regarding the
governance agreement, if Cal Am rejects signing, then the issue will be brought back to the
Authority for discussion and decision. Regarding alternative intake strategies, the Authority has
only conditioned that Cal Am develop an alternate well outside of the Salinas basin
concurrently, the type of well has not been dictated and could possibly include an infiltration
gallery. Executive Director Reichmuth said that infiltration galleries were considered by Cal Am
and is considered an option to the slant wells but slant wells are more economical. The backup
includes many types of wells including slant, infiltration and open ocean intake. The People’s
Project is a harbor intake but has significant challenges due to impingement, etc. He then said
the permitting agencies prefer slant wells if they prove to be technically feasible.
MPRWA Meeting, 3/14/2013 , Ìtem No. 2., Ìtem Page 2, Packet Page 4
President Della Sala responded to the size of the People’s Project and indicated that the CEQA
process does need to be defined, and the People’s could be easier because of the smaller size
and going through a process as a regional facility will be easier than a finite region. President
Della Sala then spoke to Mr. Rowley’s comments and said that both alternative projects have
been reporting to the MPWMD and TAC Member Stoldt has been asked to report on the
progress to the TAC.
Bill Hood spoke to conflicts of interest from sitting on multiple water related agencies. He
indicated that he does not interpret there to be an exemption. He urged the Authority to
consider waiting until receiving an opinion letter from the Attorney General. It is not unexpected
that the conflicts arise with three other water agencies in the county, but the conflict must be
dealt with when it arises. With no further requests to speak, President Della Sala closed public
comment.
AGENDA ITEMS
1. Approve Final Agreement to Form the Monterey Peninsula Water Supply Project Governance
Committee
Action: Approved
Don Freeman presented the report indicating that he indicated changes should have been
insignificant or another non-substantial. However, Cal Am did make material changes and
therefore to be in full disclosure, it should be re-approved and a resolution be adopted to amend
resolution 13-005. Mr. Freemen addressed the major changes in the document and then
answered questions of the board.
• Change orders over $1 million
• Go-No go criteria
• Brown act and meetings. The Governance Committee will be bound by the brown act,
and some others are up to the discretion of the committee.
• Because there are four parties, a quorum is defined as three. For clarification –Cal Am is
not entitled to a vote, therefore all three jurisdictions must be present for any decision to
be made.
Director Burnett clarified these changes were reflected in his testimony to the CPUC on
February 22, 2013.
President Della Sala invited public comment on the item. George Riley spoke representing
Citizens for Public Water and expressed concern about the GWR Word changes that it removes
the discretion the Authority had originally intended. He then spoke concerning the flexibility and
authority of the MPRWA with the current language indicating it could lead to a problem down the
road. He hoped GWR is rapid and ahead of the Cal Am schedule.
Ronald Cohen questioned if the Authority was concerned about the $1 million contract limit that
there is no language against the cumulative issuing of contracts to the same vendor that totals
over $1million. Bill Hood spoke to changes to category A, and questioned that for Cal Am to
MPRWA Meeting, 3/14/2013 , Ìtem No. 2., Ìtem Page 3, Packet Page 5
proceed if the EIR must be completed and all necessary permits in place. With no further
requests to speak, President Della Sala closed public comment and the Directors responded to
questions.
Legal Counsel Freeman affirmed Mr. Hood’s question that Cal Am does have to have a
completed EIR and have all regulatory permits in place to be in compliance with category A.
Vice President Burnett spoke to Mr. Riley’s comments affirming that the Authority wants the
GWR process to move forward and does not want to provide uncertainty to the lead agencies in
that project. The Governance Committee will make a recommendation based on negotiations
and will work through criteria in the coming months to provide the MRWPCA a guide. President
Della Sala requested that this item be taken up by the TAC and brought back to the Authority as
it becomes ripe.
On Motion by Director Pendergrass and Seconded by Director Rubio, the Monterey Peninsula
Regional Water Authority Approved the Final Agreement to Form The Monterey Peninsula
Water Supply Project Governance Committee and passed Resolution 13-007.
AYES: 7 DIRECTORS: Edelen, Burnett, Kampe, Pendergrass, Rubio, Della
Sala
NOES: 0 DIRECTORS: None
ABSENT: 0 DIRECTORS: None
ABSTAIN: 0 DIRECTORS: None
RECUSED: 0 DIRECTORS: None


2. Receive and Discuss Testimony Submitted to California Public Utilities Commission February
22, 2013 Deadline for Application (A- 12-04-019) Based on the MPRWA Approved Position
Statement (Burnett)
Action: Received and Discussed
Director Burnett reported on the submissions made by the MPRWA to the California Public
Utilities Commission by deadline on February 22, 2013 and expressed appreciation to staff
members who helped with the packet preparation. He noted that Fred Keely’s letter of support
for endorsing our position could be important because he was the Assemblymember when the
original legislation AB 1182 was signed into law giving the Public Utilities Commission their
authority. The testimony and letters of support are all included on the website www.mprwa.org
Director Rubio thanked Director Burnett for his efforts and contributions and thanked the
Authority for inclusion of requesting a full scale EIR consideration.
President Della Sala opened the item for public comments and had no requests to speak. The
MPRWA received the report and thanked Director Burnett for the efforts that he contributed to
the project.
3. Discuss Opportunity for Video Transmission Services through Access Monterey Peninsula
Action: Discussed and Provided Direction to Staff
MPRWA Meeting, 3/14/2013 , Ìtem No. 2., Ìtem Page 4, Packet Page 6
Clerk Milton provided the report and presented options for continuation of televising MPRWA
meetings. The Authority discussed different costs and public relations needs and provided
direction to staff.
With no more business to bring before the authority, President Della Sala adjourned the meeting
at 8:15 p.m.
ADJOURNMENT
ATTEST:


Lesley Milton, Clerk to the Authority Chuck Della Sala, MPRWA President
MPRWA Meeting, 3/14/2013 , Ìtem No. 2., Ìtem Page 5, Packet Page 7

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 3.



№06/12
FROM: Clerk to the Authority

SUBJECT: Review and Provide Recommendations on Cal Am Draft Outline of RFQ and List
of Qualifications and Selection Criteria

RECCOMENDATION:
That the Authority review the enclosed outline and provide comment to staff.

DISCUSSION:
This is framework for the Board's input to Cal Am regarding professional assistance in
developing a desalination project.
MPRWA Meeting, 3/14/2013 , Ìtem No. 3., Ìtem Page 1, Packet Page 9







CAW Draft of 3/7/13

MONTEREY PENINSULA WATER SUPPLY PROJECT
DESALINATION INFRASTRUCTURE RFQ
____________________________________________

DRAFT OUTLINE OF RFQ TO BE ISSUED BY CAW
AND
LIST OF QUALIFICATIONS AND SELECTION CRITERIA


DRAFT Outline of RFQ to be issued by CAW

Section Description
1.0 Introduction
2.0 WMDVBE Participation
3.0 Project Overview
4.0 Schedule Summary
5.0 Qualifications
6.0 Selection Criteria

Exhibit A DB Proposal Manager Form
Exhibit B Respondent Questionnaire Form (includes declaration, DB team members,
licensure, financial info, safety, insurance and termination/failure to
complete/claims info)
Exhibit C Respondent Experience Form
Exhibit D Firms prohibited from responding to RFP (e.g., RBF Consulting, Trussell
Technologies, URS Corp, Separation Processes, Inc.)

Outline of Section 5.0 - Qualifications

TEAM
• Organization Chart with Key Personnel identified
• Resume of Key Personnel

EXPERIENCE
• Desalination experience
• Water treatment plant (WTP) experience
• California WTP experience
• Brackish / Membrane WTP experience
MPRWA Meeting, 3/14/2013 , Ìtem No. 3., Ìtem Page 2, Packet Page 10
2
• WTP projects of comparable cost and size
• Experience in meeting owner deadlines for project substantial completion and
acceptance testing, particularly when facing aggressive project design, permitting and
construction schedules
• List of any projects where any of the entities have paid performance penalties,
liquidated damages or otherwise not met the owners requirement for plant in service
date
• Permitting
• California Permitting experience
• California Coastal Commission experience
• Local Permitting experience
• DB experience - individual team members independently and working together
• Post Treatment experience
• SCADA / Control experience
• Proof of meeting plant metrics such as $/MG for power and chemicals, etc.
• LEED Design / Sustainable Architectural Design experience
• References for all the above

PROJECT HISTORY
• Litigation History on Projects
• Projects found to be in default
• Notices of default

FINANCIAL
• Entity that will be shortlisted and submitting proposal (if a Joint Venture, which
balance sheet is securing the project)
• Financial Ability
• Bonding capacity
• Parental Guarantee
• Audited Financial Statements
• Evidence of Balance Sheet Strength

DIVERSITY
• Experience meeting diversity goals with reference to CPUC General Order 156

SAFETY
• OSHA incidence rate and other key metrics
• Worker's Compensation Experience Ratings

Outline of Section 6.0 – Selection Criteria

• Point and Weight system for critical items with Pass/Fail system for more standard
items
o Items on the Point and Weight system include, Team, Experience, Project
History, and portions of Safety
o Pass/Fail items include Financial, Diversity, remaining portions of Safety
MPRWA Meeting, 3/14/2013 , Ìtem No. 3., Ìtem Page 3, Packet Page 11

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 4.



№06/12
FROM: Clerk to the Authority

SUBJECT: Report from Cal-Am Regarding Test Well Design, Development and Permitting

RECCOMENDATION:
There is no written material for this item. An oral report from a Representative from Cal Am will
take place at the meeting

MPRWA Meeting, 3/14/2013 , Ìtem No. 4., Ìtem Page 1, Packet Page 13

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 5.



№06/12
FROM: Clerk to the Authority

SUBJECT: Receive Report on First Governance Committee Meeting and Provide Direction

RECCOMENDATION:
There is no written material for this item. An oral report will take place at the meeting

MPRWA Meeting, 3/14/2013 , Ìtem No. 5., Ìtem Page 1, Packet Page 15

Monterey Peninsula Water Management District  5 Harris Court, Building G, Monterey, CA 93940  P.O. Box 85,
Monterey, CA 93942-0085  831-658-5600  Fax 831-644-9560  http://www.mpwmd.net


This meeting has been 
noticed according to the 
Brown Act rules.  This 
agenda was posted on 
Friday, March 8, 2013.


Governance 
Committee Members: 
California American 
Water 
  Robert MacLean 
Monterey Peninsula 
Regional Water Authority 
  Jason Burnett, 
  Alt.‐  Chuck Della Sala 
County of Monterey 
  David Potter 
  Alt. ‐ Simon Salinas 
Monterey Peninsula 
Water Management 
District  
  To be appointed 
 
 
Staff Contact: 
David J. Stoldt, MPWMD 
Arlene Tavani, MPWMD 



AGENDA 
REGULAR MEETING 
Monterey Peninsula Water Supply Project 
Governance Committee 
*************** 
Wednesday, March 13, 2013, 2:00 PM 
Monterey Peninsula Water Management District, Conference Room, 
5 Harris Court, Building G., Monterey, CA 
 
Call to Order 
Public Comments
Anyone wishing to address the committee on: (1) scheduled agenda items; or (2) a matter not listed on the 
agenda  that  is  within  the  subject  jurisdiction  of  the  legislative  body,  may  do  so  during  Public  Comments. 
Please limit your comment to 3 (three) minutes.  
 
Agenda Items 
  1.  Election of Governance Committee Chair and Vice Chair 
     
  2.  Design‐Build  Request  for  Qualifications  (RFQ)  ‐‐  Selection  Criteria  and 
Qualifications (material to be distributed after posting of agenda) 
     
  3.  Brief Discussion on Cal‐Am Progress Regarding 8 "Conditions" of Support
     
  4.  Discuss  Process  and  Timeline  for  Parties  Agreeing  to  Criteria  for  "GWR 
Recommendation"  as  described  in  Category  A1  of  Governance 
Agreement. 
     
  5.  Discuss  and  Provide  Direction  on  Engaging  with  the  Waste  Management 
District Concerning Procurement of Power as Described in Category B4 of 
Governance Agreement 
     
  6.  Review  "Matters  Subject  to  Governance  Committee  Action"  in  the 
Agreement and Develop a Working Calendar for Agenda Items 
     
  7.  Complete the Party Distribution List for Future Meeting Notices
     
  8.  Discussion  of  Range  or  Breadth  of  Future  Governance  Committee 
Meeting Notification  
     
  9.  Next Meeting Date
     

Adjournment 
 
Upon  request,  the  Governance  Committee  will  make  a  reasonable  effort  to  provide 
written  agenda  materials  in  appropriate  alternative  formats,  or  disability‐related 
modification  or  accommodation,  including  auxiliary  aids  or  services,  to  enable 
individuals  with  disabilities  to  participate  in  public  meetings.   Please  submit  a  written 
request,  including  your  name,  mailing  address,  phone  number  and  brief  description  of 
MPRWA Meeting, 3/14/2013 , Ìtem No. 5., Ìtem Page 2, Packet Page 16
Agenda 
Monterey Peninsula Water Supply Project 
Governance Committee   
March 13, 2013 
Page 2 of 2 



the requested materials and preferred alternative format or auxiliary aid or service by 5 
PM  on  March  11,  2013.   Requests  should  be  sent  to  the  Governance  Committee 
Secretary, MPWMD, P.O. Box 85, Monterey, CA, 93942.  You may also fax your request 
to the Administrative Services Division at 831‐644‐9560, or call 831‐658‐5600. 
 
After  staff  reports  have  been  distributed,  if  additional  documents  are  produced  and 
provided to the Governance Committee regarding any item on the agenda, they will be 
made  available  at,  5  Harris  Court,  Building  G,  Monterey,  CA  during  normal  business 
hours.    In  addition,  such  documents  may  be  posted  on  the  MPWMD  website  at 
http://www.mpwmd.dst.ca.us/governancecommittee/agendas. Documents distributed at 
the meeting will be made available in the same manner. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U:\Arlene\word\2013\GovernanceCommittee\Agendas\20130313\20130313A.docx 
MPRWA Meeting, 3/14/2013 , Ìtem No. 5., Ìtem Page 3, Packet Page 17

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 6.



№06/12
FROM: Clerk to the Authority

SUBJECT: Review of Mid-Year Budget and Projections for Remainder of Fiscal Year

DISCUSSION:
There is no written material for this item. An oral report and financial update handout will take
place at the meeting

MPRWA Meeting, 3/14/2013 , Ìtem No. 6., Ìtem Page 1, Packet Page 19

Monterey Peninsula Regional Water Authority
Agenda Report

Date: March 14, 2013
Item No: 7.



№06/12
FROM: Clerk to the Authority

SUBJECT: Review Rebuttal Testimony Submitted To California Public Utilities Commission
for Application (A- 12-04-019) and Provide Direction

RECCOMENDATION:
There is no written material for this item. An oral report will take place at the meeting

MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 1, Packet Page 21
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF MICHAEL E. BARRETT OF ERNST & YOUNG, LLP
ON BEHALF OF CALIFORNIA-AMERICAN WATER COMPANY
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
307163878.1
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 2, Packet Page 22
TABLE OF CONTENTS
Page
I. INTRODUCTION 1
II. PURPOSE OF REBUTTAL TESTIMONY 2
III. OVERVIEW OF THE FINANCING PROPOSALS 2
IV. ACCOUNTING CONSEQUENCES OF SURCHARGE 2 4
V. ACCOUNTING FOR THE PUBLIC AGENCY FINANCING PROPOSALS 8
VI. CONCLUSION 15
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF MICHAEL E. BARRETT OF ERNST & YOUNG, LLP
ON BEHALF OF CALIFORNIA-AMERICAN WATER COMPANY
I. INTRODUCTION
Q 1 . Please state your name, current position and business address.
Al. My name is Michael E. Barrett. I am a partner in Ernst & Young LLP. My business
address is 55 Ivan Allen Boulevard, Atlanta, Georgia 30308.
Q2. On whose behalf are you testifying in this proceeding?
A2. I am testifying on behalf of California-American Water Company ("California American
Water").
Q3. What is your educational and professional background?
A3. I graduated cum laude from the University of Scranton in 1976 with a Bachelor of Science
in Accounting. After completing my degree, I joined the Federal Energy Regulatory
Commission (the "1-.ERC"), formerly the Federal Power Commission, as a field auditor.
In 1981, I joined Coopers & Lybrand's national utility industry program as a supervisor
responsible for audits and consulting projects to utilities. I was admitted into the
partnership in 1988 and served as the national utility industry leader for the business
assurance services. In 1998, I joined Ernst & Young, LLP as National Director-Utilities.
In September 2006, I became Ernst & Young's Southeast Area Power & Utilities Sector
307163878.1 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 4, Packet Page 24
Leader. I specialize in providing audit and consulting services to the electric, gas, water
and wastewater industries. I am a Certified Public Accountant in several states including
Pennsylvania, Georgia, and Florida. I have practiced public accounting for over 36 years.
My experience includes financial audits of electric and gas utilities, rural electric
cooperatives, and energy marketers and traders. During the course of my career, I have
worked with clients on a number of complex accounting and finance transactions
including the securitization of stranded costs, lease/leaseback to transfer tax benefits, long
term power contract consolidation due to variable interest entity accounting guidance, and
private use requirements for a power contract on a plant financed with tax exempt debt.
All of which are being touched on in the various proposals in this case. I have testified as
an expert witness in regulatory proceedings and arbitrations. I also co-authored a biennial
report "Survey of FERC Compliance Audit Findings" published by the Corporate
Accounting Committee. My curriculum vita is attached at Attachment 1.
II. PURPOSE OF REBUTTAL TESTIMONY
Q4. What is the purpose of your rebuttal testimony in this proceeding?
A4. The purpose of my testimony is to explain the general accounting principles and the
potential financial accounting consequences associated with the different proposals for
financing the Monterrey Peninsula Water Supply Project (the "Project"). Since the parties
have not agreed to pursue a specific financing proposal at this time, my testimony does
not offer an opinion on the actual accounting and financial statement consequences of any
specific proposal. Rather, I will discuss the potential accounting and financial statement
consequences of certain proposals.
III. OVERVIEW OF THE FINANCING PROPOSALS
Q5. Can you explain your understanding of the financing proposals?
A5. Yes, each proposal contains two to four elements, the sum of which will fund the Project.
The first is the equity component, which represents a direct investment in the Project by
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 5, Packet Page 25
California American Water. The second element is Surcharge 2, which is the portion of
the Project financed through a direct contribution of funds from customers.
1 The third
element is the debt component, which is the portion of the Project funded by borrowed
funds. The fourth element involves the public agency financing proposals, which involve
a proposed "contribution" of funds to California American Water by a public agency such
as the Monterey Peninsula Water Management District ("MPWI\4D"), a Special Purpose
Entity (an "SPE") established by a governmental entity or another governmental entity.
Note that I use the term "contribution" in a non-technical sense when discussing the
public agency financing proposals. As explained later in this testimony, and in Michael
Reno's testimony, the proceeds California American Water receives from the public
agency may be either sales proceeds or loan proceeds and the classification of those
proceeds may have significant financial accounting and tax consequences.
Q6. Can you explain the public agency financing proposals?
A6. Mr. Larkins, on behalf of MPWMD, recommends: 2 (I) that California American Water
engage in tax-exempt securitization borrowing; or (2) that California American Water
engage in traditional tax-exempt borrowing through the issuance of tax-exempt
Certificates of Participation ("COPs") by IVIPWMD. 3
The testimonies of Mr. Larkins, Mr. Stoldt (also on behalf of MPMWD), and DRA
assume that the use of tax-exempt securitization borrowing and traditional tax-exempt
I See generally the Direct Testimony of David P. Stephenson filed April 23, 2012, Sections IV, V, and VI. The
Division of Ratepayer Advocates (the "DRA") proposes certain modifications to Surcharge 2. See generally the
DRA Report on California-American Water Company's Application For The Monterey Peninsula Water Supply
Project, A.12-04-019 filed February 22, 2013, Chapter 6.
2 See generally the Direct Testimony of Robert Larkins, filed February 22, 2013. Mr. Larkins's testimony indicates
that his alternatives are designed to reduce or replace Surcharge 2 but it appears that he also intends for his
alternatives to reduce or replace portions of the debt component proposed by California American Water as well.
3 Mr. Stoldt, on behalf of MPWMD, also discusses tax-exempt securitization borrowing and tax-exempt Certificates
of Participation in detail. See generally the Direct Testimony of David J. Stoldt, filed February 22, 2013.
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borrowing through the issuance of tax-exempt COPs by MPWMD would be treated as a
public agency "contribution" for ratemaking purposes. According to DRA and MPWMD,
if those alternatives are considered public agency "contributions," the portion of the
Project funded by either of those methods would be excluded from the rate base as well as
the book basis of the Project. As I will explain, the proceeds California American Water
receives from the public agency will likely be treated as loan proceeds for financial
accounting purposes. If the proceeds are treated as debt for financial accounting purposes,
the increased debt on California American Water's balance sheet may increase California
American Water's future borrowing costs and, consequently, increase the rates its
customers pay. The remainder of my Testimony explains the general accounting rules of
and the potential financial statement and ratemaking consequences of the public agency
financing proposals.
Q7. What capital structure does California American Water expect the Commission to use
when computing the project's revenue requirement?
A7. California American Water requested that the Commission authorize a revenue
requirement for the Project based on the California American Water's then-in-place
authorized capital structure. 4 California American Water's current capital structure is
53% equity and 47% debt.
IV. ACCOUNTING CONSEQUENCES OF SURCHARGE 2
Q8. Can you explain how California American Water proposes to finance the project?
A8. Yes, California American Water proposes to finance the project partly with equity, partly
with long-term debt, and partly with funds from Surcharge 2. The Company will also use
up to $20 million of short-term debt during construction.
Q9. Can you explain Surcharge 2?
4 Direct Testimony of David P. Stephenson filed April 23, 2012, Section II.
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A9. Yes, Surcharge 2, was proposed by California American Water. In its report, DRA
recommends that the Commission make certain changes to Surcharge 2. Surcharge 2 is a
surcharge imposed on California American Water's customer's bills during the period the
Project is under construction. The revenue collected from Surcharge 2 be would be
treated as a customer contribution to reduce the Project's capital cost. California
American Water would track the surcharge collections in a separate account and use the
collections to offset a portion of the construction costs. The portion of the Project funded
by Surcharge 2 would be excluded from rate base, thereby, reducing rates.
Q10. Why is the DRA concerned about California American Water's proposed accounting for
Surcharge 2?
A10. The DRA is concerned that California American Water would not record the money it
receives from Surcharge 2 as a public contribution. Thus, if California American Water
sold the Project for fair market value, California American Water would receive a
windfall because the portion of the Project funded by Surcharge 2 would not be included
in the Project's acquisition cost.
Q11. How does the DRA propose that California American Water account for Surcharge 2?
Al 1. The DRA proposes that California American Water account for the funds it receives from
Surcharge 2 as a public contribution and remove the portion of the Project funded by
Surcharge 2 from the rate base.
Q12. Why are you concerned about the DRA's proposed modification to Surcharge 2?
Al2. It does not appear that the DRA considered how the Generally Accepted Accounting
Principles ("GAAP") require California American Water to account for the funds it
receives from Surcharge 2. I am concerned that the DRA's proposed modifications may
violate GAAP in that ratemaking proposals like those that would reduce plant value with
debt issued do not conform with established GAAP.
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Q13. Are there specific accounting rules that govern the accounting for Surcharge 2?
A13. Yes, in accounting parlance, Surcharge 2 appears to be Mirror Construction Work In
Process ("Mirror CWIP") arrangement. GAAP provides specific rules that govern
accounting for Mirror CWW arrangements in Accounting Standards Codification 980
("ASC 980"), which addresses Regulated Operations. See Attachment 2 for the pertinent
sections of ASC 980.
Q14. What is a Mirror CWIP arrangement?
A14. ASC 980 paragraph 55-4 defines a Mirror CWIP arrangement as a means of moderating a
sudden, one-time increase in rates that would otherwise result from placing a newly
completed utility plant in service. The reasoning behind Surcharge 2 appears to be
consistent with the definition of a Mirror CWIP arrangement.
Q15. How does a Mirror CWIP arrangement mitigate rate increases?
A15. ASC 980 paragraph 55-4 further provides that under Mirror CWIP arrangement,
increasing amounts of CWW are included in the current rate base in the periods before the
plant goes into service, providing the utility with a current return on a portion of its
investment in construction while the construction proceeds. After the plant is placed in
service, a decreasing amount of plant-in-service is excluded from the rate base each year,
mirroring the pattern in which the construction was included in the rate base. The result
of this procedure is to increase rates while the plant is under construction and to reduce
the increase in rates in the initial years of the plant's service life. The current proposals
are similar but not exactly as described in the guidance however the accounting guidance
on how to account for the revenues would still apply.
Q16. How does ASC 980 account for a Mirror CWIP arrangement?
A16. ASC 980 paragraph 55-7 explains that if an arrangement is known to be a Mirror CWIP
arrangement at the time of the construction (for example, if that arrangement is required
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by law or has been specifically ordered by the regulator), California American Water
should accrue an allowance for funds used during construction (an "AFUDC") on the total
cumulative construction cost in each period for financial reporting. The revenue
California American Water collects as a result of inclusion of construction in the current
rate base should be recorded as a liability to customers, with disclosure of the approximate
timing of the repayment that will be required under the Mirror CWIP arrangement. The
liability is amortized as customers are repaid and the plant is depreciated.
Q17. How is a Mirror CWIP arrangement treated for ratemaking pOurposes?
A17. ASC 980 paragraph 55-5 provides that for rate-making purposes, California American
Water would not recognize AFUDC on the portion of the construction that is included in
the rate base while the asset is under construction, and would recognize AFUDC on the
portion of the plant-in-service excluded from the rate base after the plant is placed in
service. The same total amount is capitalized as if no construction had been included in
the current rate base. In effect, the customer liability related to Surcharge 2 increases at
the same rate as the portion of the Project funded by Surcharge 2 that is included in rate
base.
Q18. Is it appropriate to account for Surcharge 2 as if it is a Mirror CWIP arrangement?
A18. Although the details of the Surcharge 2 fact pattern are slightly different than the
accounting guidance, I believe it is likely that the accounting guidance provided in ASC
980 would still apply. This accounting would also help satisfy the DRA's separate
accounting concerns because the funds collected would be held as a regulatory liability
and not as a reduction of the asset value. Since the amounts are not used to reduce the
cost of the asset, should it be sold, the gain would not therefore include these amounts.
The funds received are accounted for in the separate liability to customers account.
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Q19. What are the financial accounting and ratemaking consequences if California American
Water does not account for Surcharge 2 as if it is a Mirror CWIP arrangement?
A19. If California American Water does not follow ASC 980, their published financial
statements would not be in accordance with GAAP. If California American Water's the
failure to comply with GAAP is material to California American Water's parent
company's consolidated financial statements, the parent company would receive a
qualified audit opinion. The consequences or receiving a qualified opinion can be severe.
Q20. Can you summarize this portion of your testimony?
A20. Yes, Surcharge 2 appears to be a Mirror CWlP arrangement. If Surcharge 2 is a Mirror
CWIP arrangement, California American Water must account for it in accordance with
ASC 980. If California American Water fails to account for Surcharge 2 under ASC 980,
their published financial statements would not be in accordance with GAAP and the audit
opinion on the financial statements would be qualified if the deviation from GAAP results
in a material misstatement.
V. ACCOUNTING FOR THE PUBLIC AGENCY FINANCING PROPOSALS
Q21. Can you review the MPWMD's public agency financing proposals?
A21. Yes, Mr. Larkins and Mr. Stoldt make two public agency financing proposals, tax-exempt
securitization borrowing and traditional tax-exempt borrowing through the issuance of
tax-exempt COPs by the MPWMD.
Q22. Can you briefly explain the tax-exempt securitization borrowing proposed by MPWMD?
A22. Yes, under the proposed tax-exempt securitization borrowing, the California legislature
would authorize the California PUC to issue a financing order. Pursuant to the financing
order, California American Water would acquire an intangible property right authorizing
it to impose and collect a non-bypassable surcharge on California American Water
customers sufficient to pay-off tax-exempt debt issued by a public agency. California
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American Water would sell the intangible property right to the public agency in exchange
for the proceeds of debt issued by the agency. California American Water then collects
the non-bypassable surcharge from its customers and remits the proceeds to the public
agency, which uses the proceeds to service the debt.
Q23. In your experience what are the major considerations in a securitization similar to the tax-
exempt securitization proposed by MPW1VID?
A23. First, a stranded cost securitization usually relies on shorter-term debt. In most instances,
the term of the debt is tied to the rate recovery being provided, generally around 10 years
although longer term debt may be available in certain limited instances with the goal to
balance the cost of debt and interest savings with the term of the debt. Tying the debt
repayment term to the rate recovery period increases the current cost to customers, as
opposed to recovering the same amounts over the asset's life. Mr. Larkins and Mr. Stoldt
posit that their proposed tax-exempt securitization will achieve cost savings.
Nevertheless, to the extent the term of that debt is less, the proposed tax-exempt
securitization would increase the current cost to the customer.
Second, as I will explain, it is likely that arrangement under which California American
Water receives funds from the public agency would be debt of California American
Water. Credit rating agencies would review this debt when evaluating California
American Water's credit worthiness.
Third, the tax-exempt securitization, as outlined by Mr. Stoldt, appears to make the public
agency issuing the debt a variable interest entity, which would be consolidated with
California American Water on California American Water's financial statements. In other
words, Mr. Stoldt appears to posit the creation of a new public agency to issue the debt.
Additional costs, e.g., transaction fees, time, and potentially higher interest rates, would be
incurred to create the new public agency.
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Q24. Can you briefly explain the traditional tax-exempt borrowing through the issuance of tax-
exempt cops by MPWMD?
A24. Yes, under this proposal, California American Water effectively sells an intangible right,
participation in a revenue stream, to a public agency in exchange for proceeds of COPs
issued by the public agency. California American Water then collects a surcharge from its
customer and remits the surcharge proceeds to the public agency, which uses the proceeds
to service the COPs.
Q25. In your experience what are the major considerations in the transfer of an intangible right
in a transaction similar to the traditional tax-exempt borrowing proposed by Mr. Stoldt?
A25. As I understand the proposal, Mr. Stoldt would create an intangible asset, a water right.
California American Water would transfer the water right to the public agency for a
period of time in exchange for funds that the public agency receives from issuing tax-
exempt debt. It appears that California American Water would buy the water right back
over time and the public agency would use those funds to the debt. Based on my
experience, it appears likely that California American Water's long-term obligation to
repurchase the water would be a debt on its financial statements. Credit rating agencies
would review this debt when evaluating California American Water's credit worthiness.
Also, as I explained above when discussing tax-exempt securitization, if the term of the
repayment obligation is shorter than the life of the asset, the current cost to the customer
would increase.
In my experience negotiating complex transactions like this one, is very difficult, time-
consuming and expensive. I expect that negotiating the sale of water rights in exchange
for the proceeds of tax-exempt debt received by a public agency will require a
considerable amount of time and money.
Q26. Can you summarize the public agency financing proposals?
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A26.
Yes, in both instances, California American Water sells an intangible right to a public
agency in exchange for the proceeds from tax-exempt debt issued by the public agency.
In addition, in both instances, California American Water collects a surcharge from its
customers that it remits to the public agency and the public agency uses those proceeds to
service the debt or the COPs. As I understand them, the proposals exclude the portion of
the Project funded through the public agency "contribution" from the rate base.
It is important to note that in explaining the public agency financing proposals, I use the
words "sell" and "contribution" in a non-technical sense. Because the public agency
financing proposals are vague, it is not clear whether California American Water is selling
an intangible right to a future revenue stream to the public agency or whether California
American Water is issuing debt secured by a future revenue stream to the public agency.
As I will explain, for financial accounting purposes whether California American Water
sells the intangible asset to the public agency or uses it secure a debt to the public agency
is significant. My colleague Michael Reno will explain, the potential tax consequences
that may arise if California American Water sells the intangible asset to, or uses the asset
to secure a debt with, the public agency.
Q27. Can you summarize the major considerations in structuring transactions similar to public
agency financing proposals?
A27. Generally speaking, the more complex a transaction is the longer it takes to finalize. Also,
the financial risks of failing to complete the transaction increase exponentially with the
transaction's complexity.
From an accounting perspective the rules related to accounting for a variable interest
entity make it virtually impossible to eliminate debt from a company's balance sheet. The
public agency financing proposals appear to attempt to remove the debt from California
American Water's financial statements but in today's accounting environment that is very
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difficult and costly to accomplish and the outcome is uncertain.
Q28. Can you explain a typical structured transaction and how the accounting rules that apply?
A28. Yes, in a typical structured transaction a financial asset is transferred to an SPE. The SPE
then issues debt, which is used to fund the transfer of the asset. Historically, and in Mr.
Stoldt's proposals, the company transferring the financial asset retains all of the
performance risk associated with the transferred asset. Said another way, the company
transferring the asset agrees to make the receiving party whole in the event the revenue
stream associated with the transferred asset are inadequate to repay the debt. ASC 810,
which discusses variable interest entities, requires the company that transfer the intangible
asset, in this case California American Water, to record the SPE's debt on its financial
statement. The accounting rules accomplish this by requiring the company to consolidate
its financial statements with the SPE's financial statements.
ASC 810 requires the consolidation of the SPE unless all risks related to the financial
asset are transferred to other company, i.e., California American Water. Thus, under both
public agency contributions proposed in this case, California American Water would
reflect the funds it receives from the SPE as debt on its financial statements.
Q29. Can you explain how MPWMD and DRA propose to treat the public agency contributions
for rate making purposes?
A29. Yes, Mr. Larkins proposes that California American Water exclude any funding it
receives from a public agency "contribution" from both rate base and capital structure.
Mr. Stoldt's testimony is consistent with Mr. Larkins. DRA does not make a specific
proposal regarding the public agency financing proposals but it does ask the Commission
to order California American Water to explore the use of public agency financing to
reduce its reliance on either California American Water long-term corporate debt or SRF
loans.
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Q30. Can you explain how MPWMD and DRA propose to treat the public agency contributions
for financial accounting purposes?
A30. By not adjusting California American Water's capital structure, the various models imply
that MPWMD and DRA do not consider the public agency financing proposals to
constitute long-term debt. The different models appear to treat the SRF loans differently,
some as long-term debt, and others as a public contribution.
Q31. Can you explain the financial statement consequences to California American Water if the
public agency financing is considered debt?
A31. Yes, if the proposed public agency "contributions" are considered debt for financial
accounting purposes, California American Water's overall capital structure, will change.
Specifically, California American Water's capital structure will reflect a higher percentage
of debt and a lower percentage of equity. The increased debt may cause California
American Water's lenders to perceive California American Water as a more risky
investment. In the future, lenders may demand higher interest rates from California
American Water to compensate them for taking on the increased risk. In addition,
California American Water may not be able to borrow enough funds to pay for future
plant improvements or additions.
Q32. What are the ratemaking consequences of the increased risk?
A32. If investors demanded higher interest rates from California American Water, California
American Water's cost of capital would increase, thereby causing rates to increase. In
California American Water is unable to fund future plant improvements or additions, the
quality of service California American Water provides to its customers may decrease.
Q33. Could California American Water mitigate the increased financial statement risk?
A33. Maybe, but it would be difficult. For California American Water to achieve the approved
capital structure of 47% debt and 53% equity and reduce the added risk of the leverage
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from a total or corporate standpoint, California American Water would need to rebalance
its capital structure by either adding equity and/or removing debt. To accomplish this
immediately, California American Water would need to pay down its existing debt with
the additional equity contributions that would be required to rebalance the capital
structure.
Q34. What ratemaking consequences would result if California American Water opted to
rebalance its capital structure by paying down debt?
A34. If California American Water opted to rebalance its capital structure by paying down
existing debt to achieve the approved capital structure, the amount of debt not assigned to
the Project would be significantly less. Since the proposals add significant leverage to the
Project, there would be limited debt available to support California American Water's
existing rate base. Said differently, because a disproportionate share of California
American Water's debt is assigned to the Project, the existing rate base for California
American Water's other regulated operations would be funded predominantly with equity
which would increase rates.
Q35. Can you summarize this portion of your testimony?
A35. Yes, no matter how they are treated for ratemaking purposes, the proposed public agency
"contributions" would more than likely be considered debt for financial accounting
purposes. The increased debt would alter California American Water capital structure and
potentially increase California American Water's rates related to its current rate base.
Attempting to structure the public agency contributions in a manner that would not cause
California American Water to report them as debt for financial accounting purposes would
be extremely difficult, time consuming and expensive. Further, regardless of the time and
expense incurred, the parties cannot be certain that an auditor would not require California
American Water to report the public agency contributions as debt on its financial
statements.
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VI. CONCLUSION
Q36. Can you summarize your testimony?
A36. Yes, the proposed alternatives have financial accounting consequences that occur
independently of how the Commission accounts for them for ratemaking purposes. Those
financial accounting consequences may indirectly affect the ratemaking process, for
example by altering California American Water's capital structure. These effects could be
significant over time and result in higher rates and/or a lower quality of service for
California American Water's customers.
Q37. Does this conclude your testimony?
A37. Yes, it does.
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Attachment 1
Michael E. Barrett, CPA
Curriculum Vitae and Summary of Professional Testimony
Michael Barrett is a partner with the firm of Ernst & Young LLP. Ernst & Young is one of the "Big Four"
accounting firms and one of the largest professional services firms in the world. At Ernst & Young Mr.
Barrett specializes in providing audit and consulting services to the electric, gas, water and wastewater
industries. He is a Certified Public Accountant in several states including Pennsylvania, Georgia, and
Florida. Mr. Barrett graduated cum laude from the University of Scranton in 1976 with a Bachelor of
Science in Accounting. In 1976, Mr. Barrett started his career with the Federal Power Commission, which
later became the Federal Energy Regulatory Commission, as a field auditor responsible for completing
audits of electric and gas utilities for compliance with the Commission's Uniform System of Accounts. In
1980, he joined Harvey Hubbell, Inc. a manufacturing company in Orange, CT., as a senior internal
auditor. There he was responsible for financial and operational audits of the various divisions of the
Company. In 1981, he joined Coopers & Lybrand in their national utility industry program as a supervisor
responsible for audits and consulting projects to utilities. He was admitted into the partnership in 1988
and served as the Firm's national utility industry leader for the business assurance line of business. In
1998, he joined the firm of Ernst & Young as National Director-Utilities. He relinquished that role in
September 2006 and is currently the Firm's Southeast Area Power & Utility Sector Leader.
Mr. Barrett's experience includes financial audits of numerous electric and gas utilities including rural
electric cooperatives, and several energy marketers and traders. He has also performed contract audits of
power purchase agreements. He has also testified as an expert in regulatory proceedings and arbitrations.
In addition to his audit experience his non-audit client experience has included examinations of
prospective financial information and analysis of projections, assistance in mergers and acquisitions
including due diligence and financial analysis, financial systems design and implementation and
organization and staffing assessments.
Mr. Barrett is a member of the American Institute of Certified Public Accountants. He is a member of the
Corporate Accounting Committee of the Edison Electric Institute and American Gas Association. He has
served as the Treasurer of the Alliance to Save Energy. Mr. Barrett also co-authored a biennial report
"Survey of FERC Compliance Audit Findings" published by the Corporate Accounting Committee. He
has also spoken at numerous industry conferences and training courses sponsored by both industry
associations, Coopers & Lybrand and Ernst & Young. Below is a listing of his professional testimony,
including his recent testimony before the LPSC.
2012 Niagara Mohawk Power Corporation
Before the State of New York Public Service Commission
Docket Nos. NIMO 12-E-
0201 and 12-G-0202
2012 Yankee Gas Services Company
Before the Connecticut Public Utility Regulatory Authority
Docket No. 10-12-02
2010 South Jersey Gas Company
In the Matter of Petition for Approval Of Increased Base Tariff
Rates
BPU Docket No. GR
10010035
United States of America
vs.
Louisiana Generating LLC
Civil Action No. 09-CV-
100-RET-CN
2009 Entergy Gulf States, Inc.
Before the Louisiana Public Service Commission
Consolidated Dockets U-
21453, U-20925, U22092
(Subdocket J)
2008 United States of America
vs.
Kentucky Utilities Company
Civil Action No. 5:07-
CV-75-KSF
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1:2_,"

A
New Jersey Natural Gas Company
Before the New Jersey Board of Public Utilities
Docket No. GR06060415
2006 Columbia Gas of Virginia, Inc.
Before the Commonwealth of Virginia State Corporation
Commission
Case Nos. PUE — 2005 —
00098, 10000
2005 United States of America
vs.
East Kentucky Power Cooperative, Inc.
Civil Action No. 04-34-
KSF
Florida Power & Light Company
Before the Florida Public Utility Commission
Docket No, 050045-EI
Application of Nevada Power for Authority to Adjust Electric Rates
Before the Nevada Public Service Commission
N/A
2004 The United States et. al.
vs.
American Electric Power Company, et. al.
Civil Action Nos. C2 99-
1182, C2 99-1250
South Jersey Gas Company
In the Matter of Petition for Approval Of Increased Base Tariff
Rates
BPU Docket no. GR
03080683
Application of Madison Gas and Electric Company for Authority to
Adjust Electric and Natural Gas Rates
Before the Wisconsin Public Service Commission
N/A
Application of Wisconsin Public Service Company for Authority to
Adjust Electric Rates
Before the Wisconsin Public Service Commission
N/A
Nicor Gas Company
vs.
Illinois Commerce Commission
Docket No. 01-0705, 02-
0067, 02-0725
2001 Cinergy Corporation
vs.
The United States
N/A
2000 South Jersey Gas Company and Elizabethtown Gas Company
Before the New Jersey Board of Public Utilities
N/A
1999 Delaware Electric Cooperative
Before the Delaware Public Service Commission
Docket 99-457
Investigation by the D.T.E. into Boston Edison's Compliance With
the Department's Order in D.P.U. 93-37
DPU 97-95
1998 Public Service of New Hampshire, North Atlantic Energy
Corporation, Northeast Utilities and Northeast Utilities Service
Company
vs.
Public Utilities Commission of the State of New Hampshire
N/A
Duquesne Light Company
vs.
State of Ohio
Re: Property Tax
Assessment
1997 City of Warton, Pasadena and Galveston Texas Individually and as
Class Representatives
vs.
Houston Lighting & Power Company and Houston Industries
Finance, Inc.
Pursuant to Texas Rule of
Civil Procedures
Regarding Cause No. 96-
016613
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%
x, E
Application of ODEC for correction of Assessments of Gross
Receipts Taxes and for a Refund - tax year 1997
Case No. PST970002
American Bituminous Power Partners, L.P.
vs.
Monongahela Power Company
Case No 55-198-012-96
DAW
1992 Florida Cities Water Company
vs.
Hillsborough County, FL
N/A
City of Palm Bay, FL and City of North Port, FL
vs.
Generation Development Utilities, Inc.
Arbitration
North Carolina Municipal Power Agency No. 1 and Piedmont
Municipal Power Agency
vs.
Duke Power Co.
Fourth Arbitration
Seaboard Water Co.
vs.
Hillsborough County, FL
N/A
The Florida Public Service Commission
vs.
General Development Utilities, Inc.
Port Malabar and West Coast Divisions
Docket No. 911030-WS
& Docket No. 911067-W
1991 City of Austin — City Commissions
vs.
Southern Union Gas Company
N/A
Nevada Public Service Commission
vs.
Sierra Power Company
Docket No. 91-7079, et.
al.
1989 Public Service Commission of The State of Tennessee
vs.
United Cities Gas Company
Docket No. 89-10017
1987 Central Florida Gas Company
vs.
Florida Public Service Commission
Docket No. 8970118-GU
1985 Public Service Commission of Delaware
vs.
Chesapeake Utilities Corporation
Delaware Division
Docket No. 85-17
1983 Eastern Shore Natural Gas Company
vs.
Federal Energy Regulatory Commission
Docket No. RP83-32-000
Chesapeake Utilities - Citizens Division
vs.
Maryland Public Service Commission
Case No. 7952
1982 Chesapeake Utilities - Delaware Division
vs.
Delaware Public Service Commission
Docket No. 82-10
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Attachment 2
Portion of ASC 980 pertaining to Mirror CWJP accounting
Inclusion of Construction Work in Progress in Rate Base
55-4 Mirror construction work in progress is one means of moderating the sudden, one-time
increase in rates that would otherwise result from placing a newly completed utility plant in
service. Under mirror construction work in progress, increasing amounts of construction work in
progress are included in the current rate base in the periods before the plant goes into service,
providing the utility with a current return on a portion of its investment in construction while the
construction proceeds. After the plant is placed in service, a decreasing amount of plant-in-
service is excluded from the rate base each year, mirroring the pattern in which the construction
was included in the rate base. The result of this procedure is to increase rates while the plant is
under construction and to reduce the increase in rates in the initial years of the plant's service life.
55-5 For rate-making purposes, no allowance for funds used during construction is recognized on
the portion of the construction that is included in the rate base while the asset is under
construction, and an allowance for funds used during construction is recognized on the portion of
the plant-in-service that is subsequently excluded from the rate base after the plant is placed in
service. The same total amount is capitalized as if no construction had been included in the
current rate base.
55-6 The mirror construction work in progress arrangement described is not a phase-in plan
under the definition used in this Subtopic because it does not defer recovery of costs that would
not have been deferred under the methods of rate making used prior to 1982. Rather, it
effectively provides a temporary loan from customers to the utility during construction and
requires repayment of that loan after the plant is placed in service.
55-7 If the arrangement is known to be a mirror construction work in progress arrangement at the
time of the construction (for example, if that arrangement is required by law or has been
specifically ordered by the regulator), an allowance for funds used during construction should be
accrued on the total cumulative construction cost in each period for financial reporting. The
revenue collected as a result of inclusion of construction in the current rate base should be
recorded as a liability to customers, with disclosure of the approximate timing of the repayment
that will be required under the mirror construction work in progress arrangement.
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1
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Application of California-American Water
Company (U21 0W) for Approval of the
Monterey Peninsula Water Supply Project and
Authorization to Recover All Present and Future
Costs in Rates.
A.1 2-04-01 9
(Filed April 23, 201 2)
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REBUTTAL TESTIMONY OF WILLIAM J. CHAMBERS
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 941 1 1
(41 5 ) 291 -7400
Idolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8 , 201 3
307140755.2
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 941 02
(41 5 ) 8 63-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 23, Packet Page 43
TABLE OF CONTENTS
Page
I. INTRODUCTION
1
II. SCOPE OF TESTIMONY
3
III. PRINCIPLES FOR EVALUATING FUNDING ALTERNATIVES 3
IV. EVALUATION OF MPWMD TESTIMONIES 7
ATTACHMENT 1 : CURRICULUM VITAE OF WILLLIAM J. CHAMBERS 1 7
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
Application of California-American Water
Company (U21 0W) for Approval of the
Monterey Peninsula Water Supply Project and
Authorization to Recover All Present and Future
Costs in Rates.
A.1 2-04-01 9
(Filed April 23, 201 2)
REBUTTAL TESTIMONY OF WILLIAM J. CHAMBERS
I. INTRODUCTION
Ql. Please state your name and business address.
Al. My name is William J. Chambers. I reside at 3 Albion Place, Charlestown, Massachusetts
021 29.
Q2. By whom are you employed and in what capacity?
A2. I am currently an Associate Professor of Finance at Boston University. I teach finance
courses that address topics such as cash flow analysis, capital budgeting, and project
evaluation, investment analysis and financial markets.
Q3. What is your educational and work background?
A3. I received a B.A. in Economics & History at the College of Wooster. I then received
M.A., M.Phil. and Ph.D. degrees in Economics at Columbia University.
I joined the faculty of Boston University in 2005 . I teach courses in finance, investment
analysis, portfolio management, capital markets and financial institutions. Prior to joining
Boston University, I worked in various capacities for Standard & Poor's for 22 years. A
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complete listing of my professional experience is included in my curriculum vitae, which
is attached as Attachment 1 .
Q4. What were your responsibilities at Standard & Poor's?
A4. The large majority of my time at Standard & Poor's ("S&P") was in its debt rating
division. Initially, I worked to rate sovereign governments, states and localities and
government-owned enterprises, including utilities and financial institutions.
Subsequently, I had oversight over all corporate credit ratings for companies domiciled
outside of the U.S. and was responsible for the merger and integration of the international
group with the U.S. domestic corporate rating group. I was actively involved in the rating
of many utilities as they moved from public to private ownership or underwent
deregulation.
My last years at S&P were with a consulting unit established to work with corporate
entities and financial institutions to improve their internal credit evaluation systems.
Throughout my tenure in the credit rating part of the business, I was involved in the
development and application of credit rating criteria for sovereign risk, general corporate
risk and specific topics including parent-subsidiary relationships.
Q5 . On whose behalf are you testifying?
A5 . I am testifying on behalf California-American Water Company ("California American
Water" or the "Company").
Q6. Have you testified before the California Public Utilities Commission ("Commission")?
A6. No. I have previously testified before other regulatory and judicial bodies. This
testimony is listed in Attachment 1 .
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SCOPE OF TESTIMONY
Q7. What is the purpose of your testimony?
A7.
California American Water has asked me to evaluate a number of important points raised
in the testimony presented by Robert Larkins and David Stoldt on behalf of the Monterey
Peninsula Water Management District ("MPWMD"), and the report of the Division of
Ratepayer Advocates as to the financing of the proposed Monterey Peninsula Water
Supply Project and its potential impact.
Q8 . How does your experience relate to your testimony in this proceeding?
A8 . The financing of the Monterey Peninsula Water Supply Project will have important
implications for both the public utilizing the water supplied by California American Water
as well as on the Company itself. As a consequence, achieving the best possible financing
arrangement for the project is essential. There are many aspects which must be
considered in evaluating financing alternatives. While some of these are not knowable at
this time, certain key factors and principles can be discussed and addressed.
III. PRINCIPLES FOR EVALUATING FUNDING ALTERNATIVES
Q9. What are some of the factors that the Commission should consider in evaluating how the
project should be funded?
A9. Among the most important are:
• Any potential public contributions to the project's financing and the terms and
conditions on which those contributions are made.
• The mix of equity and debt that will be used to finance the project;
• Sources for any borrowed funds
• Costs associated with those borrowings, including interest costs and the costs
associated with underwriting and issuing the debt;
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Potential obstacles and delays associated with implementing any financing scheme,
including any legal, political and regulatory issues;

The effect of the financing scheme on California American Water and its parent,
American Water Works Company Inc.;

Reaction by investors and the independent credit rating agencies to the financing
scheme.
Q1 0. What principles do you believe that the Commission should consider in reviewing the
financing arrangements for the project?
A1 0. There are several key elements that should be incorporated into any decision. Clearly any
financing scheme should focus on maintaining the financial integrity of the project as well
as keeping customer charges as low as reasonably possible. To achieve these overall
objectives several additional factors should be considered:
1 . Funds that can be used to reduce the net capital cost which must be financed could
reduce any subsequent charge on customers.
2. A reasonable balance of equity and debt financing should be maintained. Excessive
levels of debt could threaten the financial integrity of the project.
3. Debt financing should be obtained with the best balance of terms and conditions.
a. One consideration is the all-in cost for such debt, incorporating both the
interest rate, legal and underwriting costs, and any other factors affecting the
cost of the funds.
b. The stated maturity of such debt and, to the extent necessary, the ability to
refinance any residual debt at the maturity of the original debt is also critical.
For example, non-amortizing debt might result in lower initial financing costs
but would result in a requirement to refinance the principal balance in the
future. Similarly, matching the term of the debt to the project life through the
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 28, Packet Page 48
use of longer-term debt reduces the refinancing risk imposed by use of shorter-
term debt.
It is my understanding that the Commission has recognized that the cost of financing
should not be the only criterion, but, rather, that other factors should be incorporated
into the decision of the best overall financing package.
4. The complexity of any financing arrangement must also be considered. Given an
already-complex project with multiple layers of regulatory approval required, adding
yet more complexity through elaborate, complicated financing arrangements could
adversely burden a project. The financing arrangement should facilitate the successful
completion and implementation of a project with significant benefits to the
community, not interfere with or threaten its success. Financing arrangements that
require additional actions by public or private bodies, regulatory approvals, creation of
special purpose entities, and the like could potentially and unintentionally pose
impediments to the successful implementation of the project. Simplicity in financial
structure is often superior to complexity for this basic reason.
5 . The financing arrangements must be structured in such a way that they not create
undue financial risk for California American Water, its parent, American Water Works
Company, Inc. or any of the public bodies involved. The financing scheme must be
stable and robust and able to accommodate any reasonably anticipated risks that might
arise. This is not to say that there should be no risk; that is unrealistic. But the
financial structure should have sufficient flexibility and durability that volatility
caused by, for example, macro-economic cycles, do not threaten the project's viability
and should not contribute additional volatility and uncertainty. Similarly, the overall
financial arrangements should also protect the Company from actions beyond its
control that might create stranded capital costs which it is unable to recover. The
financial viability of California American Water, American Water Works Company,
Inc. and the public authorities affected must not be imperiled by the financing scheme
ultimately selected for the project.
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Q1 1 . California American Water's proposal suggested a fairly straightforward financing
framework for the project, did it not?
Al 1 . Yes. Following the testimony of Jeffrey Linam, California American Water's Director of
Finance, the proposed framework is:
• Approximately $1 00 million to be funded by a surcharge ("Surcharge 2") on customer
rates, commencing in 201 4
• The remainder of the project to be financed with a mix of 5 3% equity and 47% debt.
• To the extent that it will be available, the debt portion would be funded by the
California State Revolving Fund ("SRF"). The SRF would provide the lowest
effective interest rate on the debt.
• If SRF borrowings were not available, then California American Water has said it will
pursue the lowest cost debt, which may be taxable or tax-exempt long-term fixed rate
debt.
Q1 2. How does the financing scheme proposed by California American Water correspond with
the principles you have identified?
Al2. It corresponds very well with those principles. Funds raised by means of Surcharge 2 will
meet a significant portion of the projected capital cost, reducing the amount of other
financing required, thereby reducing the project's financial risk to some extent and future
customer payment rates from what they otherwise would be. The capital structure of 5 3%
equity and 47% debt preserves that of California American Water, as reviewed previously
by the Commission, and does not, in itself, increase the risk profile of the company. To
the extent that it is available, utilizing SRF debt would provide the lowest cost debt
financing for the project. My understanding is that California American Water has
pledged to pass through the benefit of the lower interest rate on SRF debt if SRF funds are
available. If SRF funds are not available, then having California American Water borrow
via American Water Capital Corporation should provide relatively low-cost corporate debt
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to the project with minimal complexity or impediment. Thus overall the California
American Water proposal addresses the principles I've identified very well.
IV. EVALUATION OF MPWMD TESTIMONIES
Q1 3. Did Mr. Larkins propose several alternative financing schemes for the project?
A1 3. Yes. Mr. Larkins identified several possible alternatives. These include:
• Securitization of perhaps $1 00 million of debt through a tax-exempt special purpose
entity created for the sole purpose of issuing such debt by MPWMD. This debt would
be repaid via a first claim on any revenues generated by the project. The debt would
be issued on a non-recourse basis, meaning that neither MPWMD nor California
American Water would be legally responsible for that debt if project revenues were
not sufficient to meet the debt obligations.
• Issuing debt on a tax-exempt basis via the California Pollution Control Financing
Authority, which would require California American Water to obtain a so-called
"private activity bond allocation" through the California Debt Limit Allocation
Committee.
• Obtaining public financing issued by MPW1 VID in the form of a certificate of
participation. Again such financing would be tax exempt and would be repaid via a
surcharge on customers' bills.
Q1 4. Would you dismiss any of the alternative proposals identified by Mr. Larkins out of hand?
A1 4. No. Each alternative deserves to be explored, but any of these proposals could easily
carry with it additional unforeseen costs or other hurdles which would affect its viability
as an alternative to the California American Water proposal. While a given alternative
might at first glance appear attractive, one should consider any legal, administrative or
regulatory issues that may increase the effective all-in cost of the financing scheme. In
addition, one should consider whether any of these alternatives creates uncertainties or has
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any inherent risks that would reduce the alternative's attractiveness or eliminate it entirely
as a viable candidate. I also understand that California American Water has indicated that
it may consider such public agency financing proposals if certain principles are met, as
discussed in the rebuttal testimony of Mr. Linam.
Q1 5 . Would the use of Surcharge 2 be a beneficial component of the overal financing package?
A1 5 . Yes. California American Water has included Surcharge 2 as part of its proposal, and the
testimony of both Mr. Larkins and Mr. Stoldt support this. Funds from Surcharge 2 can
be used to fund a portion of the construction cost, thereby reducing the amount that needs
to be financed from other sources. The financial risk for the project will be reduced as a
result. This will also reduce California American Water's rate base going forward, thus
reducing rates from what they otherwise would be.
Q1 6. Earlier you said that the use of the SRF Funds would be the cheapest source of funding. Is
the use of the SRF, as described by Mr. Larkins, a reasonable proposal?
A1 6. Yes it is. Mr. Larkins states that use of the SRF Funds would be the preferred method of
financing the debt portion of the project. Using the SRF would be a low-cost way to fund
the project. It would be straightforward and not depend on outside investors, investment
banks, rating agencies, or other outside participants. It is my understanding that the
Company's discussions with the State Water Resources Control Board ("SWRCB") have
indicated that California American Water is eligible for SRF funding for the entire
project. 1 The entire project includes the California American Water-Only Facilities that
were previously approved as well as the new components submitted as part of this
application. More information on this is provided in the direct and rebuttal testimony of
California American Water's Vice President of Engineering, Richard Svindland.
1 See discussion in the Application of California-American Water Company (U21 0W) For Approval Of The
Monterey Peninsula Water Supply Project and Authorization To Recover All Present and Future Costs In Rates at pp
1 3-1 4.
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Q1 7. Can you offer any particular comments re the proposed securitization of $1 00 million of
debt?
A1 7. I believe that Mr. Larkins's proposal has several key weaknesses, among which are the
following:
• Significantly higher organizational, legal and underwriting costs than the SRF funds or
the corporate debt alternative. These costs would offset some or possibly all of the
apparent lower interest rate applying to the financing.
• Securitized debt would effectively be a super-senior obligation. Payments on the debt
would be the first obligation, relegating operating costs and other debt costs of
California American Water to a subordinated position.
• The overall proportion of debt financing for this scheme would also be significantly
higher, raising the overall risk profile for the project. Mr. Larkins's suggested
scenario would entail approximately 77% total debt financing, a combination of the
$1 00 million in securitized debt and additional $35 .5 million in SRF debt (out of a
total project finance of $1 75 .6 million). It is my understanding that previous
Commission decisions have identified a high proportion of debt to support any project
or organization as a substantial risk concern. It is also likely that, from a practical
standpoint, the securitized debt would be considered to be part of the MPWMD's
and/or California American Water's overall debt burden, thereby reducing its
creditworthiness.
Q1 8 . But the non-recourse stipulation on the securitized debt would limit MPWIVID's and
Company's legal liability, would it not?
A1 8 . Superficially this would be true from a legal standpoint. But from a practical standpoint
and from the perspective of the credit rating agencies it would still be included.
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Let's hypothesize that, for whatever reason, the project encountered significant problems,
for example, the equipment was not functioning as expected and costly repairs were
necessary. From a narrow, legal perspective MPWMD and/or California American Water
could walk away from the project debt and there would be no legal recourse. But from a
practical, operational standpoint could or would MPW1 VID or California American Water
simply walk away? The simple answer is no. The effect on the public would be
significant, if not catastrophic. That facility will be essential to supplying the region with
water. It cannot be permitted to simply disappear into bankruptcy. Thus the image and
allure of "non-recourse" financing is something of a mirage.
The rating agencies take this approach and incorporate such off-balance sheet debt into
their calculation of the company's overall debt burden. In some ways this is similar to the
imputed debt attributable to power purchase agreements (PPAs) that the Commission has
long recognized.
Q1 9. Is your analysis consistent with the criteria applied by the rating agencies?
A1 9. Yes. For example, Standard & Poor's has stated:
securitizations do not ordinarily transform the risks or the underlying
economic reality of the business activity—that is, provide what is
commonly referred to as "equity relief." Equity relief is rarely achieved
when a company has a recurring financing requirement, in contrast to one
that uses securitization only as a means to monetize a non-core asset on a
one-time basis. If securitization is used to supplant other debt, its effect
on credit quality is likely to be close to neutral. Because the accounting
treatment of securitization frequently is not congruent with Standard &
Poor's Ratings Services' analytical perspective, adjustments to the reported
financials are often necessary. In the event of a bankruptcy, an issuer's
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reliance on securitization can be detrimental to the ultimate recovery
prospects of unsecured creditors—and so may well warrant notching down
of unsecured debt issue ratings from the issuer credit rating. 2
Q20. Are there other relevant concerns regarding the securitization option?
A20. Yes. The issuance of any asset-backed security like this involves a complex set of legal
arrangements. Mr. Larkins's testimony highlights some of these concerns. Larkins
Exhibit WD-4 authored by Sidley Austin LLP regarding legal issues surrounding the
financing alternatives notes that "Securitization would require legislation from the
California legislature and a 'financing order' issued by the California PUC pursuant to the
legislation."3 The complexity of issuing asset-backed securities has increased in the wake
of the financial crisis when many asset-backed securities encountered problems and many
investors, having been burned during the financial crisis, are wary of many proposed asset
securitizations. I am not suggesting that the proposed financing could not successfully
address any of these requirements or concerns, but the time and cost required to do so
could be substantial.
Q21 . Please identify some the factors that might affect the MPWMD financing proposal?
A21 . Yes, they would be similar to those identified regarding the two alternate proposals
though not identical. Since Mr. Larkins's testimony is offered on behalf of MPWMD,
presumably his recommendation of this financing scheme has been reviewed by and
endorsed by MPWMD. Nevertheless, even with informal approval, the negotiation of any
formal agreement regarding the certificate of participation could raise additional,
unforeseen issues. Under this proposal, the MPWMD financing would cover up to $1 00
million of the total financing burden, similar to the securitization proposal, leaving the
remainder to be financed by SRF funds. Again the complexity of the proposal is apparent,
2
Standard & Poor's, Securitization's Effect On Corporate Credit Quality, November 2005
3
Direct Testimony of Robert Larkins, Exhibit WD-4, pg 3.
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and the need for approvals from multiple entities can raise many issues regarding the
timing or even the ultimate success of the financing for the project. As with the
securitized alternative, it would also increase the total proportion of debt used to finance
the project, thus adding further financial risk. The certificate of participation financing
would be attributed to California American Water, thereby affecting the Company's
overall creditworthiness.
Q22. California American Water does not currently have a separate credit rating from the major
rating agencies. Will this be required?
A22. California American Water's parent American Water Works currently holds a solid credit
rating from the two largest credit rating agencies — Moody's Investors Service and
Standard & Poor's. California American Water does not hold a separate credit rating and
has accessed the debt capital markets by borrowing funds via its affiliate American Water
Capital Corporation. This arrangement has apparently worked well in the past, and it is
California American Water's intention to continue with this arrangement. The Company
does not seek at this time to obtain such a separate credit rating. It is possible that some of
the financing alternatives identified by Mr. Larkins could require California American
Water to obtain an independent rating. Such a requirement could potentially impede the
financing arrangement from proceeding if it created delays or required a higher rating
from the rating agencies than the Company could achieve on its own. In addition, as
noted, both the securitization and MPWMD certificate of participation financing
alternatives suggested by Mr. Larkins, would result in California American Water bearing
a higher effective actual or imputed debt burden, thus diminishing the Company's
creditworthiness in the eyes of the rating agencies and private investors.
Q23. What other aspects of Mr. Larkins's testimony raise issues with you?
A23. I believe that Mr. Larkins's emphasis on the net present value (NPV) of each of the
alternatives he explores provides only minimal value in comparing and analyzing the
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alternatives or the issues before the Commission. First, it is my understanding that the
results are not actually the calculations of the NPV, but more simply the present value of
the future cash flows received from customers. These calculations can provide some
insight. For example in comparing the alternatives with or without the customer
Surcharge which reduces the effective capital cost, with California American Water
financing the remainder with 5 3% equity and 47% corporate debt (Alternatives A vs. F),
the lower present value of future revenue requirements resulting from the Surcharge are
highlighted. However, other comparisons are more obscure. For example, Mr. Larkins
suggests that the benefits of using the SRF funding (Alternative A vs. C), with a presumed
interest rate of 1 .7%, are modest as compared with using California American Water's
corporate debt, with a presumed interest rate of 5 %. One would think that the difference
and implied benefit would be larger.
Consequently I believe that a simpler basis of comparison might render a clearer
understanding. In this case a single project is being considered, in contrast to a situation
where several competing projects are being compared, each with a different capital costs .
The question is what mix of equity and debt is most appropriate to use to finance this
capital expenditure. And once that financing mix is set, consideration should be given to
what is the most cost effective source of debt for the project. If, for example, SRF
funding is available, that would appear to be the least expensive source of debt financing.
The discussion effectively can end there. The calculation of a present value beyond that
determination provides only limited additional useful information that could meaningfully
assist the Commission in making its decision.
To the extent that the Commission focuses on a present value or NPV calculation, Mr.
Stoldt argues, and Mr. Larkins incorporates in his calculations, a discount rate of 6%
which might be applicable to a public sector project. In contrast, I believe that the
appropriate discount rate to be applied is the weighted average cost of capital ("WACC")
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for California American Water. 4 This approach is in keeping with the basic principles of
corporate finance and is consistent with the approach that the Company has taken in its
analysis. So long as California American Water is expected to bear the risk for the
project, it is the Company's WACC that is the appropriate discount rate to be applied.
The application of lower discount rates, such as those reflecting a public entity's cost of
capital, would be reasonable and appropriate only under conditions whereby the public
entity is willing to effectively guarantee the project and assume any risk of the private
sector entity involved.
Q24. Did you review any other testimony filed by intervenors?
A24. Yes, I reviewed the testimony filed by the Division of Ratepayer Advocates ("DRA").
Q25 . Do you have any comments on that testimony?
A25 . Yes. In the comments supporting the imposition of Surcharge 2, at page 6-1 4 of the
testimony, DRA asserts that "... Surcharge 2 funds should accrue interest at the same rate
as Cal Am's authorized return on equity." I found this proposal ill-advised for several
reasons. Most importantly, the application of these funds will be used to meet
construction costs and will ultimately reduce California American Water's regulated rate
base. This will make a significant contribution to reducing the rates that customers would
otherwise need to pay in the future. This provides a significant benefit to customers and
customers will effectively be earning a return equal to the overall rate of return on
invested capital allowed to the Company. The Surcharge 2 funds will be applied in a
similar manner as interim borrowings to meet construction costs as incurred. Hence an
argument can be made that they should accrue interest in like manner to AFUDC.
Attributing a higher rate of return during the construction phase of the project would
create an unfair distortion to the overall financing of the project.
4
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Q26. DRA has also recommended a "hard" cost cap for the project. From a financing
perspective how would a hard cost cap be viewed?
A26. I believe that it would be impractical and ill-advised to establish a hard cost cap for the
project. All of us, from the individual homeowner consulting a plumber or electrician
about home repairs to corporations and governments undertaking major capital project,
such as that currently under consideration, would like a hard and fast number for the
construction cost. The reality, however, is that there are a myriad of uncertainties,
particularly for any major project, and that, despite everyone's best efforts, the precise
cost of construction can be extremely difficult to predict. Construction budgets contain
contingency amounts, but nevertheless uncertainties exist. Overages can arise due to
many factors, many of which are outside the contracting entity's control. To set a hard
construction cap raises the inevitable question of what happens should the cost cap be
exceeded for whatever reason. Establishing a hard cost cap would add further
uncertainties onto the project and raise questions as to whether the project can be
completed and commissioned in a timely manner. Simply suggesting that any additional
costs should be laid on the shoulders of California American Water is also unrealistic.
Consequently, while superficially attractive, I believe that it would be inappropriate to set
a hard cost cap on the project as a condition for its approval.
Q27. Having reviewed the financing alternatives, in your opinion what is the best source of
funding if California American Water is not able to access SRF funds?
A27. I believe that the Company's proposal represents a cost effective and efficient financing
plan for the project. If SRF funds are not available and assuming the availability of
Surcharge 2 funds to defray construction costs, a 5 3% equity contribution and 47%
corporate debt mix will present a reasonable financing structure for the project. The
overall cost of funds should be reasonable. But critically, the use of corporate debt will
provide the fewest uncertainties or chances that the project will be delayed or derailed by
financing issues. This plan will not require any special actions tied solely to the financing
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 39, Packet Page 59
structure as any of Mr. Larkins's proposed alternatives would. While the direct interest
cost might be modestly higher for such corporate debt financing the speed and certainty
with which it could be achieved strongly recommend it.
Q28 . Does that conclude your testimony?
A28 . Yes.
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ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 41, Packet Page 61
Attachment 1: Curriculum Vitae of Willliam J. Chambers
WILLIAM J. CHAMBERS, Ph.D.
Curriculum Vitae
3 Albion Place

Home: 61 7-242-2046
Charlestown, Massachusetts 021 29

Mobile: 8 5 7-5 40-95 5 6
E-mail: wchamber@bu.edu
Independent Consultant September 2005 — Present
Typical assignments include:
Development and delivery of expert testimony regarding creditworthiness, credit
ratings, and the impact of credit ratings on the financial viability of companies,
their access to capital markets and cost of capital
Development and improvement of credit evaluation models, templates and
scorecards
Evaluation and validation of internal credit evaluation systems
Review of credit evaluations of individual companies
Review or simulation of rating agency ratings
Assessment of economic and capital models
Instruction at professional courses concerning internal credit evaluation systems
Boston University September 2005 - Present
Metropolitan College
Department of Administrative Sciences
Associate Professor
Responsible for teaching graduate and undergraduate courses in corporate finance,
investment analysis, portfolio management, multinational finance, international
investments and capital markets.
Coordinate on-line instructional program for banking & financial services, project
management, international marketing, insurance, business continuity and human
resources management.
Standard & Poor's, New York, New York
Consultant to Risk Solutions September 2005 — September 2006
Managing Director January 2001 -August 2005
Risk Solutions Americas Practice Leader
Global Head of Content Development & Quality Assurance
Responsible for Americas operations of newly formed group covering consulting, credit training, credit
modeling, default& recovery information, etc. Coordinated work with other departments of S&P
including Structured Finance and Corporate & Government Ratings. A major portion of the work was
with banks and other financial institutions, improving their internal rating systems and compliance with
Basel II international capital standards.
Developed and co-taught courses on internal credit scoring systems, credit scoring, loss given default and
portfolio management.
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Oversaw research on default, credit transition, loss given default
Oversaw development of credit risk models
Managing Director, Corporate Ratings
Strategic Planning, Product Development & Marketing December 1 996-December 2000
Headed team responsible for Corporate Ratings Group strategic planning, product research, development
and launch and marketing.
Oversaw development of Bank Loan Ratings and Rating Evaluation Service, which provides advice
regarding the impact of identified strategic actions such as acquisitions or recapitalization on firm's
creditworthiness.
Oversaw acquisition of Portfolio Management Data and Canadian Bond Rating Service
Oversaw development of credit risk models and creation of loss given default database
Managing Director, International Corporate Ratings January 1 992 - December 1 996
Responsible for all non-US corporate ratings including developed and emerging markets, including first
corporate ratings assigned in Latin America, China and Southeast Asia.
Developed criteria for evaluating corporate entities, parent-subsidiary relationships, sovereign
risk impact on corporate creditworthiness, and structured financings.
Director, Standard & Poor's Australia January 1 990 - December 1 991
Oversaw acquisition of Australian Ratings in Melbourne and its integration into the S&P network
Reviewed all existing debt ratings and coordinated conversion to international rating scale
Director, International Public Sector Ratings September 1 98 3 -December 1 98 9
Responsible for rating of sovereign, municipal and government-owned institutions in Canada, Australia,
New Zealand, Sweden and Germany. Responsible for analysis of multi-lateral lending institutions,
including the International Bank for Reconstruction & Development (World Bank, IFC), Inter-American
Development Bank & Asian Development Bank.
Participated in development of criteria and first assignment of ratings to international structured finance,
bond insured transactions, sovereign risk effect on private sector borrowers (sovereign ceiling) and
preferred creditor status of multi-lateral lenders.
Researched and developed office plans for Canada and Australia
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G.M. Stamm Economic Research Associates, Toronto, Ontario
Vice President and Director of Research March 1 979-September 1 98 3
Oversaw all economic and financial research for consultant specializing in real estate and public
finance sectors. Developed background analysis, expert testimony and support for hearings
before the Ontario Municipal Board and Ontario Energy Board, regarding impact of energy
pricing on corporate customers, impact of real estate development on municipalities and existing
businesses, etc.
Regional Municipality of Durham, Whitby, Ontario
Senior Econoinist March 1 976-March 1 979
Conducted a wide variety of financial and economic studies for the region concerning fiscal capacity and
impact of development, capital works financing, budgets, self insurance, etc.
Newfields Development Corp., Dayton, Ohio
Director of Financial Planning June 1 974-March 1 976
Analyzed all financial aspects of large, new town development
Taught economics as an Adjunct at Miami University of Ohio
Education:
Columbia University, New York, New York
Department of Economics M.A., M. Phil, Ph.D. June 1 975
Fields of Specialization: Urban Economics, Public Finance, Monetary Theory,
Microeconomic Theory
Dissertation: The Optimal Allocation of Land to Transportation in Urban Areas
William Vickrey, Advisor
College of Wooster, Wooster, Ohio
Major in Economics and History B.A., June 1 968
Summary of Relevant Expert Witness Experience
1 98 0-1 98 3 Testimony before the Ontario Energy Board on behalf of the Association of Major
Power Consumers of Ontario (AMPCO) for Ontario Hydro's annual rate hearings.
2009 Rohm & Haas vs. The Dow Chemical Company
2009 General Electric Capital Canada Inc. vs. Her Majesty The Queen
2009 In The Matter Of The Current And Future Financial Condition Of Baltimore Gas And
Electric Company Before The Public Service Commission Of Maryland
201 1 El Fassi Realty Corp. v. 31 West 34th Street LLC
201 1 NA General Partnership & Subsidiaries, Iberdrola Renewables Holdings, Inc. &
Subsidiaries, Successor in Interest to NA General Partnership & Subsidiaries v.
Commissioner of Internal Revenue, Docket No. 5 25 -1 0
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF PETER M. LEFFLER, P.G., C.HG
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
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Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 45, Packet Page 65
TABLE OF CONTENTS
Page
I. INTRODUCTION
1
II. PURPOSE AND SOURCES 2
III. SLANT WELLS
3
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 46, Packet Page 66
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
I. INTRODUCTION
Ql. Please state your name, business address, telephone number and e-mail address.
Al. My name is Peter Leffler and my business address is 1000 Broadway, Suite 440, Oakland,
CA 94607. My email address is pleffler@fugro.com.
Q2. Please state your employer and job title.
A2. I am employed by Fugro Consultants, Inc. as an Associate Hydrogeologist.
Q3. Please describe your education, registrations, and professional work history.
A3. I have a B.S. in Geology from the University of Illinois (Champaign-Urbana) and an M.S.
in Hydrogeology from the University of Nevada (Reno). I am a Professional Geologist
(No. 6475) and Certified Hydrogeologist (No. 462) in California. My professional
memberships include National Ground Water Association, California Groundwater
Association, American Geophysical Union, and Geological Society of America. I have
been working as a groundwater and hydrogeology consultant in California since 1990. I
have worked for Fugro since 2002, previously was employed by Todd Engineers between
1993 and 2002, and worked for Lowney Associates and Harding Lawson Associates from
1990 to 1993. Most of my work relates to development and management of groundwater
for water supply. Other types of hydrogeologic studies I have performed include
assessment of percolation pond capacity for waste water treatment plants, geotechnical
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dewatering, sand and gravel mining groundwater impacts, and soil and groundwater
contamination. My CV is included with this testimony as Attachment 1.
Q4. Please describe your current professional responsibilities.
A4. As Associate Hydrogeologist, I am responsible for executing a wide variety of
hydrogeologic and groundwater studies throughout California ranging from test well and
municipal well design/installation to groundwater basin studies and groundwater
modeling. I perform all or several of the following roles for each project: fieldwork,
technical data analyses, groundwater modeling, project manager, management of other
staff, proposal preparation, and report writing. I am also responsible for general
marketing, business development, and client relationships related to Fugro's northern
California groundwater resources practice.
Q5. Please describe your experience providing expert testimony.
A5. I have provided expert testimony in three cases. The first involved an issue related to the
source of nitrate concentrations in a well in the Santa Cruz area, the second was related to
the Antelope Valley Groundwater Basin Adjudication in southeastern California, and the
third was related to potential development of water supply wells in an area impacted by
petroleum hydrocarbons in the San Diego area. I provided expert witness deposition and
courtroom testimony in the first two cases, and deposition testimony in the third case.
PURPOSE AND SOURCES
Q6. Please summarize the purpose of your testimony.
A6. The purpose of my testimony is to provide my professional opinion regarding the
anticipated hydrogeological effects of the proposed Monterey Peninsula Water Supply
Project (MPWSP) slant wells, as currently proposed, on the Salinas Valley Groundwater
Basin. I also outline some of the steps that are being taken to further investigate and
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validate the technical information and analyses that have been developed to date on this
project.
Q7. What information do you rely upon in developing this testimony?
A7. The information I relied upon includes technical memorandums prepared for Salinas
Valley Water Coalition by Tim Durbin dated December 3, 2012 and February 21, 2013,
direct testimony before the California Public Utilities Commission provided by Joe Oliver
of Monterey Peninsula Water Management District (MPWMD) dated February 22, 2013,
a technical memorandum prepared for ESA by Dennis Williams of GeoScience dated
February 6, 2013, and various reports referenced by Tim Durbin, Joe Oliver, and Dennis
Williams in the documents cited above. I also reviewed two reports documenting design,
installation, testing, and modeling of a coastal saline water intake slant well in Orange
County.'
III. SLANT WELLS
Q8. Based on the information that you have reviewed, do you have any concerns about the
development or yield of slant wells in the "shallow dunes aquifer," rather than the "180
foot aquifer"?
A8. Based upon my review of available data and reports, the development of the shallow
dunes aquifer would likely have a negligible effect on the inland Salinas Valley
Groundwater Basin. Durbin (February 21, 2013) acknowledges that there would probably
be no adverse impact from development of the shallow dune sands aquifer. Available data
do not indicate the presence of a continuous confining clay layer between the sea bed and
the location of slant wells targeting the shallow dune sands aquifer; thus, a direct
hydraulic connection with the sea bed is expected to occur with such slant wells.
I United States Bureau of Reclamation, Results of Drilling, Construction, Development, and Testing of Dana Point
Ocean Desalination Project Test Slant Well, Desalination and Water Purification Research and Development
Program Report No. 152, January 2009 ("USBR, January 2009");United States Bureau of Reclamation, Subsurface
System Intake Feasibility Assessment, Desalination and Water Purification Research and Development Program
Report No. 153, September 2009 ("USBR, September 2009")
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The potential yield of shallow dunes aquifer slant wells at the proposed project site is
addressed in Joe Oliver's CPUC direct testimony (dated February 22, 2013) and the
reports he references. Testimony from Joe Oliver states that available data (from testing
of vertical wells) suggest slant wells tapping only Dune sand (and possibly upper 180-foot
aquifer) may not have sufficient well capacity without incorporating the lower 180-foot
aquifer zone. There are a couple aspects of slant wells to consider (compared to vertical
well data that are cited by Joe Oliver) that may improve well capacity: a) a slant well has
greater footage of well screen exposed to the sand/gravel zone, and b) a slant well places
the screen closer to the recharge boundary (i.e., sea bed). These two aspects of slant wells
would tend to increase specific capacity and well capacity compared to a vertical well.
Ultimately, the planned test slant well will provide the necessary data to determine if slant
wells must incorporate the lower 180-foot aquifer zone to achieve sufficient well capacity.
Review of the reports referenced by Joe Oliver provides some useful data for evaluating
the potential increase in well capacity for a slant well compared to a vertical well. The
investigation by Staal, Gardner, and Dunne (SGD, 1992) included drilling of pumping and
monitoring wells, aquifer testing, and aquifer parameter analysis. Based on the pumping
well specific capacity of 37 m/ft calculated by SGD, a vertical well in the shallow Dune
Sand deposits could produce 700 gpm with about 20 feet of drawdown. However, as
noted by SGD, "A Ranney collector is capable of discharge rates much higher than
conventional wells because it is not subject to the localized dewatering of the formation
that occurs in a conventional well in an unconfined aquifer system."
A detailed analysis for installation of a Ranney Collector well was also included in the
SGD report. A Ranney well at the site would consist of a vertical caisson installed below
the water table to an elevation of approximately -50 feet MSL from which horizontal well
screens would be installed radially away from the caisson (four laterals assumed to extend
out 80 feet from bottom of caisson towards the ocean). The SGD analysis concluded one
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collector well would have a capacity of about 5.9 MGD (4,100 gpm), and two collector
wells spaced 500 feet apart would have individual capacities of about 3.75 MGD (2,600
gprn) and combined capacity of 7.5 MGD (5,200 gprn) with associated drawdown of
approximately 20 feet.
Individual slant wells can be expected to have well capacities intermediate between
vertical wells (700 gpm) and Ranney collector wells (4,100 gpm). Given the plans for 9
slant wells extracting a total of 23 MGD requires 2.55 MGD (1,775 gpm) per slant well.
The data and analysis presented in SGD (1992) provide an indication that slant wells in
the shallow dune deposits may be able to provide sufficient combined well capacity.
Additional field studies are planned at the project site that include installation of a test
slant well, which will provide the additional data needed to assess feasibility of slant wells
to provide a combined 23 MGD.
Q9. Is there any information in the record that you have reviewed, including but not limited to
the testimony and exhibits of Timothy Durbin on behalf of the Salinas Valley Water
Coalition and Joseph Oliver on behalf of the Monterey Peninsula Water Management
District, that would suggest that the 180' aquifer is "confined," "unconfined," of "partially
confined" in the area of the proposed slant wells?
A9. Based upon my review of the GeoScience Technical Memorandum (TM) and Durbin TM
and the specific reports referenced by each, it is my opinion that the GeoScience TM
provides a very good summary of the available hydrogeologic data and cross-sections that
are relevant to the project site. Furthermore, the GeoScience TM Figures 18 and 19
reflect the available data for project site vicinity stratigraphy. In contrast, Durbin's
(December 3, 2012) Figures 3/4a14b/4c illustrate stratigraphic relationships clearly not
present in the project site vicinity based upon available data. Durbin's figures may
generally represent stratigraphic relationships outside of the project vicinity adjacent to
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the Salinas River about two miles north of the project site (although the technical basis for
the offshore portion of his figures remains unclear).
Geologic cross-sections prepared by Harding Lawson ESE (2001), Kennedy Jenks (2004),
and SGD (1992) indicate the presence of thin clay layer(s) approximately 3,300 to 4,400
feet inland (east) and south of the proposed project site. Review of the specific lithologic
logs included in the reports for the nearest boreholes indicates these thin clay layers occur
at different elevations ranging from a 10-foot thick clay layer at approximately -40 to -50
feet MSL south of the proposed project site to a 45-foot thick clay layer at approximately -
135 to -180 feet MSL east of the project site. These clay layers decrease in thickness from
north (45 feet) to south (10 feet) and do not appear to correlate well due to their
occurrence at widely varying elevations — indicating the clay layers are thin and
discontinuous, and representative of semi-confined aquifer conditions for the lower 180-
foot aquifer.
The depth zone above the clay layers cited above is alternately referred to as either the
shallow Dune Sands or the Dune Sands/Upper 180-foot aquifer. The zone below the
referenced clay layers is referred to as the Lower 180-foot aquifer. The Dune
Sands/Upper 180-foot aquifer is best characterized as unconfined, whereas the Lower
180-foot aquifer is best characterized as semi-confined due to the thin and discontinuous
nature of clay layers in this area. Durbin's statement (February 21, 2013) that a
continuous clay layer more than 50 feet in thickness (perhaps implying a confined aquifer)
is present opposite (and beneath) the proposed project site does not appear to be accurate.
The available lithologic data and geologic cross-sections illustrate stratigraphic
relationships nearby but not directly at the project site. These available data likely provide
a good indication of what can be expected at the project site, but additional project site
field work is planned to confirm project site stratigraphy.
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A semi-confined aquifer will have quicker and greater vertical leakage of saline ocean
water than a truly confined aquifer. The lower 180-foot aquifer immediately (i.e., within
approximately one mile) inland of the proposed project site is best characterized as semi-
confined based upon the relatively thin and/or discontinuous nature of clay layers in this
area. Beyond a one-mile radius towards the middle of Salinas Valley the 180-foot aquifer
may grade from semi-confined to confined conditions. The off-shore portion of the lower
180-foot aquifer between the proposed project site and subsea outcrop is most likely of an
unconfined to semi-confined nature. The semi-confined lower 180-foot aquifer will likely
discharge a very high proportion of saline ocean water via vertical leakage through semi-
confining layers. A significant contribution of saline water to a semi-confined aquifer
could also come from the seabed outcrop of the lower 180-foot aquifer (if vertical leakage
is insufficient to supply the vast majority of well discharge).
Q10. What are the anticipated hydrogeologic consequences of the relative "confinement" of the
180' aquifer if slant wells for the MPWSP were to be developed in that depth zone?
A10. As discussed above as regards to absence of thick and continuous clay aquitard layers in
the project site vicinity, confined aquifer conditions are not anticipated at the project site
and ocean ward of the project site. Nonetheless, if a truly confined aquifer were present
and extended west beneath the ocean from the project site, it is known that the 180-foot
aquifer outcrops on the sea bed beginning about 1.5 miles offshore of the project site
(Greene, 1970). On the landward side of the project site seawater intrusion in the 180-foot
aquifer extends about five miles into Salinas Valley Groundwater Basin. In this
hypothetical confined aquifer scenario, the hydrologic boundary conditions include a
constant head surface water (ocean) boundary 1.5 miles to the west and continuation of
the confined aquifer inland for at least 20 miles to beyond the pressure zone subarea.
Hydrogeologic principles dictate that a pumping well at the beach in a hypothetical
confined aquifer as described above is expected to ultimately derive the vast majority of
its discharge water from the ocean constant head boundary at the seabed outcrop.
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Simplified analytical calculations can be applied to assess the general magnitude of the
proportion of water discharged from wells that ultimately derives from surface water
boundaries (e.g., a river). Such calculations may be a useful analogy to a scenario of a
confined aquifer with a seabed outcrop (e.g., the Salinas Valley 180-foot aquifer).
Application of such principles and calculations in this case suggest that pumping wells on
the beach screened in a confined aquifer could expect to extract in excess of 90% of
discharged water from the ocean via the seabed outcrop boundary after six months to a
year of pumping. Such a calculation does not include the contribution to well discharge of
vertical movement of saline water from the seabed between the shoreline and ocean
outcrop of the 180-foot aquifer. Only a very small proportion of saline brackish water
would be expected to be derived from the onshore seawater-intruded portion of the
groundwater basin at significant pumping durations (e.g., six months to one year or more).
Durbin (December 3, 2012) states that wells near the Monterey Bay shore tapping a
confined 180-foot aquifer would extract approximately equal proportions of groundwater
from the onshore and offshore parts of the groundwater system. As described above, this
is almost certainly not the case as the hydrologic boundary at the 180-foot aquifer outcrop
will act as a constant head recharge boundary that will supply the vast majority of
groundwater extracted by the wells at any significant pumping times (e.g., six months to a
year). Given the more likely semi-confined conditions for the 180-foot aquifer, vertical
leakage of saline ocean water will probably make up the vast majority of well discharge.
Furthermore, seawater intrusion in the 180-foot aquifer was first discovered in Salinas
Valley in 1931 (Greene, 1970). Subsequent rapid and extensive seawater intrusion has
continued from the 1930's until today. Given that relatively extensive groundwater
pumping likely didn't occur until shortly before 1930's time frame, it is likely that a direct
hydraulic connection exists between the onshore 180-foot aquifer and offshore saline
water sources (vertical leakage from seabed and/or aquifer seabed outcrop). This historic
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seawater intrusion experience further suggests that proposed slant wells at the shoreline
screened in the 180-foot aquifer will even more readily tap into saline water from the
ocean via vertical leakage from the seabed or horizontal flow from the seabed aquifer
outcrop than vertical wells further inland that have caused extensive historic seawater
intrusion.
Q11. Is the proposed test slant well likely to produce information to resolve questions about the
impact of the proposed slant wells on the Salinas Valley Groundwater Basin?
Al 1. I understand that additional field work is planned and will include drilling/installation of a
test slant well and pumping tests. Results of such work will further inform the design of
the production slant wells, demonstrate the potential for inland groundwater impacts or
lack thereof, and provide additional data/information regarding boundary conditions (e.g.,
seabed leakage).
The installation and testing of the test slant well is expected to produce information/data
to help resolve various questions about groundwater basin impacts. First, pumping tests
conducted on the slant test well should provide data that allow for calculation of expected
pumping rates for individual slant wells screened in the upper dune sand aquifer and/or
180-foot aquifer. Second, slant well pumping tests should allow for calculation of aquifer
parameters which, combined with knowledge of individual slant well capacities, should
allow for detailed analytical/modeling analysis of various arrays of slant wells in the upper
dune sand aquifer and/or 180-foot aquifer towards meeting the required total production
capacity. Third, knowledge gained about individual and multiple slant well capacities,
aquifer zones that must be screened to achieve necessary combined well capacities, and
aquifer parameters will then allow for detailed modeling analysis to inform the existing
hydrogeologic conceptual model and numerical groundwater model.
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During the course of the constant-rate pumping test, water levels in the test well and
surrounding monitoring wells can be monitored. Plotting of the water levels in the various
wells will reveal much about the extent of the cone of depression and how boundary
conditions (such as vertical leakage from seabed) impact the extent of the cone of
depression. If a recharge boundary is encountered relatively quickly as expected,
equilibrium will likely be achieved and water levels will stabilize and stop declining.
Review of a pumping test report for a test slant well in Orange County indicated stabilized
groundwater levels were achieved about one day after start of continuous pumping
(USBR, January 2009). Water quality constituents (e.g., TDS, chloride) may take longer
to stabilize as the recharge source (i.e., ocean) gradually provides an increasingly greater
proportion of discharge for the well.
Q12. What is the appropriate baseline for assessing the effects of the proposed slant wells on
the Salinas Valley Groundwater Basin?
Al2. I understand that previous groundwater modeling efforts for the North Marina Alternative
of the Regional Project used a baseline model run that included 2030 land use and a
14,000 AFY reduction in groundwater pumping in Salinas Valley. Durbin (December 3,
2012 and February 21, 2013) has stated that use of this particular baseline (that includes
implementation of SVWP Phase 2) results in model-predicted project impacts that are less
severe (compared to a baseline without SVWP Phase 2) in Salinas Valley Groundwater
Basin. However, it is my opinion that the use of this baseline in previous modeling efforts
likely results in similar or worse project impacts than would occur under the baseline
condition recommended by Durbin, as explained below.
Each project scenario model run superimposes proposed project conditions (e.g., pumping
wells) on a given baseline condition. The results of the project scenario model run are
then compared back to the model run with that same baseline condition without the
project — the project impacts become the difference between the two model runs.
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Conceptually, one would generally expect project impacts to be similar regardless of the
baseline applied because project impacts are the difference between model runs with and
without the proposed project and both runs have the same baseline conditions. For
example, the drawdown that a proposed well is expected to produce might be calculated to
be 10 feet at a given point in the aquifer. That well should produce close to 10 feet of
drawdown for a reasonable range of static water level (i.e., baseline) conditions. The
project impact of 10 feet of drawdown should not change significantly just because the
baseline static water level upon which it is superimposed changes to a modest degree.
That being said, further consideration of hydrogeologic principles suggests that a baseline
condition with the SVWP Phase 2 implemented should result in the freshwater interface
moving closer to the coast. Under such a condition, the proposed project should have
more opportunity to impact the freshwater in the basin than without the SVWP Phase 2
project (where the freshwater interface is further inland from the coast).
Lastly, it should be considered that it does not yet appear that the advance of sea water
intrusion into Salinas Valley Groundwater Basin has been stopped and reversed. Thus, it
is likely that further sea water intrusion mitigation measures will be needed in the
foreseeable future, whether or not that involves the specific SVWP Phase 2 plan. In
general, other seawater intrusion mitigation measures can be expected to have similar
effects on the basin as the SVWP Phase 2. Therefore, incorporation of SVWP Phase 2
plans into the SVIGSM baseline model run is probably more realistic and likely than not
including any such seawater intrusion mitigation plans in the baseline run.
Nonetheless, I understand that additional updates and model runs are planned for the
SVIGSM Model that will provide input on boundary conditions for the GeoScience
MODFLOW model. These updates are to include different baselines with and without the
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Salinas Valley Water Project Phase 2. Thus, Durbin's concern on this matter will be
addressed.
Q13. Does this conclude your testimony?
A13. Yes.
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ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 59, Packet Page 79
Timm"
Resume
Peter M. Leffler, PG, CHg
Associate Hydrogeologist
Education:
MS Hydrology/Hydrogeology, University of Nevada, Reno, 1 989
BS Geology, University of Illinois, Champaign-Urbana, 1 986
Seminars/Workshops/Conferences:
MODFLOWfor Simulation of Ground Water Flow and Advective Transport, Dallas, Texas, The Association of
Ground Water Scientists and Engineers/National Water Well Association, 1 991
PCApplications in Risk Assessment, Remediation, Modeling, and GIS, San Francisco, CA, National Ground
Water Association, 1 998
3-D Groundwater Flow and Transport using Visual MODFLOW, Vancouver, British Columbia, Waterloo
Hydrogeologic, 2000
Groundwater Modeling II - Advanced Applications and Strategies for Dealing with Pitfalls in MODFLOW,
MODPATH, and MT3D, Vancouver, British Columbia, Waterloo Hydrogeologic, 2001
Advanced Groundwater Modeling — Applications for Saturated Flow and Transport, Density-Dependent Flow,
Unsaturated Conditions and Heat Transport using FEFLOW, Waterloo, Ontario, Waterloo Hydrogeologic, 2001
Model Calibration and Predictive Uncertainty Analysis using PEST, San Francisco, CA, California
Groundwater Resources Association, 2003
Vadose Zone Hydrology, Contamination, and Modeling (HYDRUS), Los Angeles, CA, University of California
Cooperative Extension & California Groundwater Resources Association, 2008
Construction Dewatering and Groundwater Control — Design and Application, San Francisco, CA, American
Society of Civil Engineers, 2009
Professional Registration:
Registered Geologist, California, No. 6475, 1 996
Certified Hydrogeologist, California, No. 462, 1 996
Experience:
Mr. Leffler has more than 20 years of experience performing hydrogeologic studies in California. His
experience includes groundwater basin analysis and management; groundwater modeling, design and
construction management for water wells, test wells, and monitoring wells; pumping tests and data analysis;
evaluation of artificial recharge options, evaluation of bedrock groundwater flow and yields frombedrock wells,
salt loading impacts analysis, salt water intrusion analysis, water resources planning, water quality,
contaminant hydrogeology, and surface water-groundwater interaction. His responsibilities have included
proposal preparation, project management, fieldwork, data analysis, modeling, report preparation,
presentations, client contact, and interaction with regulatory agencies.
East Bay Municipal Utility District — Bixler Project. Conducted a groundwater basin study in eastern
Contra Costa and western San Joaquin counties. The study area encompassed approximately 250
square miles. The project included evaluation of the hydrogeology, a water balance study, a large-scale
aquifer test involving 20 monitoring wells, and construction/calibration/application of a groundwater flow
and solute transport model (MODFLOWand MT3D). The water balance study included evaluation of
precipitation recharge, streampercolation, bedrock recharge, irrigation recharge, well pumping, and
return flows. Key aspects of the model included the interaction between groundwater and the Bay-Delta
system(rivers and sloughs), and potential changes to groundwater levels and total dissolved solids from
proposed ASR operations. The project has also involved extensive contact and meetings with local
water agencies and consultants to obtain data for the hydrogeology and water balance studies.
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Peter M. Leffler, PG, CHg
Associate Hydrogeologist
• DERWA Watershed Salt Migration Study. Served as project hydrogeologist with responsibility for
developing the hydrogeologic conceptual model. The project involved assessment of salt migration
associated with irrigation frompotable and recycled water. The conceptual model included evaluation of
the fractured bedrock, Dublin-San Ramon groundwater basin, and Niles Cone groundwater basin, and
surface water-groundwater interactions. The hydrogeologic conceptual model provided the basis and
inputs for a series of vadose zone and groundwater models.
• Tehachapi-Cummings County Water District. Completed a hydrogeologic conceptual model for the
Cummings Groundwater Basin located near Tehachapi, California. The study involved a hydrogeologic
characterization of the basin, a water balance study, groundwater quality analysis, and preparation of
numerical model input files. The water balance study included evaluation of precipitation recharge,
percolation of streamflow, groundwater inflow frombedrock, irrigation recharge, artificial recharge,
treated wastewater percolation, well pumping, and groundwater outflow. The hydrogeologic conceptual
model provided the basis for construction and calibration of a MODFLOWand MT3D groundwater flow
and solute transport numerical model.
• Santa Lucia Preserve/Rancho San Carlos. Performed a comprehensive hydrogeologic study for a
20,000-acre site proposed as a housing and golf course development. The water supply for the project
was developed fromlow yield fractured bedrock wells. Responsibilities included project management,
evaluation of aquifer testing and water level data, assessment of groundwater quality data, evaluation of
project impacts to on-site and off-site water resources, report writing, and interaction with county
agencies.
▪ County of San Luis Obispo Public Works Department. Phase II of the Paso Robles Groundwater
Basin Study involved construction and calibration of a numerical groundwater (MODFLOWand MT3D)
model. Work on the project included evaluation of the hydrologic budget (water balance) fromthe Phase
I study to construct numerical model input files for each recharge and discharge component. Recharge
components included precipitation recharge, irrigation return flow, streambed percolation, wastewater
discharge percolation, and bedrock groundwater inflow. Discharge components included phreatophyte
water use, groundwater pumping, and subsurface outflow. Results were summarized in an interim
report.
• Kaweah Delta Water Conservation District. Served as project manager for development, construction,
calibration, and application of a numerical groundwater flow model (MODFLOW). The model domain
covered some 340,000 acres encompassed by the District and simulated the significant recharge and
discharge components. The model was calibrated and sensitivity analyses were performed. Scenarios
run with the calibrated model included urban growth and conjunctive use.
• City of Visalia Groundwater Flow Model. Currently serving as project manager for development,
construction, calibration, and application of a numerical groundwater flow model (MODFLOW). The
model domain covered some 62,000 acres that included the urban area of Visalia and surrounding
agricultural lands. The study involved preparing a water balance to quantify the significant recharge and
discharge components, which was subsequently used as input to the groundwater flow model. The
model was calibrated and scenario runs are currently in progress. The study is being conducted for the
City of Visalia, California Water Service Company, and Kaweah Delta Water Conservation District.
• Port of Oakland. Project hydrogeologist with responsibility for development of the hydrogeologic
conceptual model. In addition to an extensive review of existing data, project work included drilling and
installation of 1 4 new monitoring wells, pumping tests, and assessment of existing groundwater quality.
The conceptual model provided the basis for a groundwater computer model of saltwater intrusion using
the SUTRA code. Numerical and analytical techniques were used to evaluate the potential for saltwater
intrusion impacts caused by proposed dredging.
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Peter M. Leffler, PG, CHg
Associate Hydrogeologist
m
City of Soledad WWTP. Conducted hydrogeologic studies to evaluate percolation pond capacities for
the existing WWTP ponds, an old percolation pond site formerly used by the State prison, and an
adjacent parcel currently in agricultural production. The field investigation at the prison ponds and
adjacent agricultural parcel involved cone penetrometer testing, drilling of borings and installation of
monitoring wells, performance of slug tests and lab permeability testing to evaluate hydraulic
conductivity, and measurement of water levels over time. Field investigation results were used as input
to local scale groundwater flow models (MODFLOW) to assess groundwater mounding and percolation
capacity. Results were summarized in a report for each site.
• City of Santa Paula VVWTP. Served as project manager and project hydrogeologist for a study to
assess groundwater mounding and percolation capacity associated with the proposed construction of
treated wastewater disposal ponds at the existing WWTP. The study involved compilation and
evaluation hydrogeologic field data fromCPTs, borings, and wells installed both on-site and in the
surrounding vicinity of the WWTP. Field data were used to develop a groundwater flow model
(MODFLOW) for evaluation of groundwater mounding and percolation capacity during dry, average, and
wet-year groundwater level conditions.
• Scotts Valley Water District. Conducted a variety hydrogeologic studies including: assessment of
artificial recharge alternatives, evaluation of salt loading impacts fromrecycled water irrigation,
construction management for test wells and production wells, aquifer testing, and water balance studies.
• Puente Hills Landfill. Prepared, calibrated, and applied a visual MODFLOWgroundwater computer
model. The model was used to simulate capture zones for existing and proposed extraction wells and
contaminant migration at two subsurface barrier locations at a landfill in southern California.
m
Malibu Housing Development. Constructed and calibrated a MODFLOWand MT3D groundwater
model to simulate groundwater level and quality impacts caused by septic systemreturn flows froma
proposed housing development along the coast near Malibu, California.
• Exxon Refinery. Soil and groundwater contamination studies for a refinery in Benicia, California; and
compilation and reporting of quarterly groundwater monitoring data for the refinery. Additional
responsibilities included analysis of slug test data, calculation of groundwater velocities and volumes,
well yield calculations, and report writing.
• Horse Stable Operation. Served as an expert witness providing deposition and trial testimony. The
case involved the potential for fecal coliformand nitrate contamination of groundwater and changes in
surface runoff froma horse stable operation in Santa Cruz County.
• Reclaimed Water Irrigation Feasibility Study, Buena Vista Migrant Center, Watsonville, CA.
Conducted a study on the feasibility of using a portion of the reclaimed water generated at the facility for
irrigation purposes. The study included evaluation of the hydrogeology, groundwater chemistry, and
reclaimed water chemistry to evaluate potential impacts to groundwater. In addition, a wastewater
systemwater balance analysis was completed to evaluate pond holding capacity under a range of
climatic conditions.
• City of Gilroy. Served as project manager for a well siting study, test well construction, and municipal
well construction. A municipal well siting study was initially conducted to identify the best sites for test
well construction. Field work that was subsequently conducted included the drilling, installation, and
aquifer testing of eight test wells to depths of up to 1 ,000 feet; and drilling/construction of one municipal
production well.
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Resume
Peter M. Leffler, PG, CHg
Associate Hydrogeologist
• Nipomo Community Services District. Conducted a hydrogeologic study to assess groundwater
mounding associated with treated wastewater disposal ponds at the existing WWTP. The study involved
compilation and evaluation hydrogeologic field data fromthe WWTP site and in the surrounding vicinity of
the WWTP. Field data were used to develop a groundwater flow model (MODFLOW) for evaluation of
groundwater mounding beneath and surrounding the pond system. The model was calibrated to
historical groundwater level measurements and utilized to evaluate future disposal rates that would not
cause further expansion of the groundwater mound.
• BART Dewatering Feasibility Study. Served as project manager for a dewatering feasibility study in
Fremont, California for planned expansion of the BARTtracks in a subway tunnel. The project involved
construction management and observation for installation of a 1 2-inch diameter pumping well and two 4-
inch diameter monitoring wells, pumping tests, data analysis, and report preparation.
UNWI 9 Pipelines Oak Avenue Dewatering Project. Conducted an aquifer characterization study that
included the construction and development a test well and three piezometers in an unconfined aquifer.
Aquifer testing data were analyzed to obtain aquifer parameters, and the data were used to evaluate
proposed dewatering operations at the site.
• Cache Creek Hydrogeologic Study. Performed a regional hydrogeologic study of the Cache Creek
watershed in Yolo County to evaluate past, present, and potential future impacts of gravel mining. The
study included evaluation of stratigraphy and aquifer delineation, assessment of aquifer parameters,
delineation of groundwater flow patterns, evaluation of groundwater level fluctuations, groundwater
storage calculations, and groundwater quality analysis. The hydrogeologic study provided the basis for
computer model simulation to evaluate water level impacts due to mining and the extent of capture zones
frompotential water supply wells.
• East Palo Alto Redevelopment. Evaluation of soil and groundwater quality for a site proposed for
redevelopment in East Palo Alto, California. Performed fieldwork that included soil vapor surveys, cone
penetrometer testing, hydropunch groundwater sampling, drilling of soil borings, installation of
groundwater monitoring wells; and collection of groundwater samples. Office responsibilities included
management of task budgets, evaluation of chemical and hydrogeologic data, and preparation of the final
report.
• San Francisco Public Utilities Commission. The SFPUC is partnering with the City of Daly City, Cal
Water, and the City of San Bruno to construct the Groundwater Storage and Recovery Project in northern
San Mateo County. The proposed project involves in-lieu recharge of groundwater via reduced pumping
of groundwater by partner agencies during average to wet years when SFPUC can deliver greater
quantities of surface water to partner agencies. Fugro's involvement in the ongoing project has included
peer review of nested monitoring well drilling/installation, design of test/production wells and preparation
of detailed engineering well specifications, well survey and well drawdown interference study, subsidence
study, and overall coordination of groundwater studies for EIR support.
• Antelope Valley Groundwater Basin Adjudication. Served as an expert witness on behalf of Los
Angeles County water purveyors. Provided deposition and trial testimony on issues related to mountain
front recharge, bedrock permeability, and groundwater flow through bedrock as a source of recharge to
basin alluvium.
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Resume
Peter M. Leffler, PG, CH9
Associate Hydrogeologist
• East Bay Municipal Utility District — Bayside Project Aquifer Testing. Conducted extensive aquifer
testing of an Aquifer Storage and Recovery well located in San Lorenzo, CA. Initial testing in 2005
including short-termextraction (4 hours at 1 ,200 gpm) and injection testing (4 hours at 650 gpm) of the
ASR well using a local network of monitoring wells. The pump was pulled, inspected, video logging
conducted, and pump reinstalled in conjunction with the short-termaquifer testing effort. A large-scale
and long-termaquifer test was then conducted in 201 0 by pumping the ASR well at 1 ,400 gpmfor two
months followed by collection of two months of recovery data. A local and regional monitoring network
including monitoring of observation wells ranging from40 feet to 5 miles away fromthe ASR well that
included wells in the cities of San Lorenzo, San Leandro, and Hayward. A comprehensive report was
prepared that included evaluation of data from25 observation wells utilized in the 201 0 test along with
evaluation of regional aquifer testing conducted by others.
• City of Malibu, Department of Planning. For the past 4 years, Mr. Leffler has provided periodic review
of development applications related to wastewater systems in the City of Malibu. Such projects have
typically involved review of data analysis and numerical groundwater modeling to determine performance
criteria and sustainable operation of onsite subsurface wastewater disposal systems for consistency with
City of Malibu, Los Angeles Regional Water Quality Control Board, and California Coastal Commission
LCP requirements. Mr. Leffler has provided such review for projects commonly referred to as Malibu
Lumber, Legacy Park, the Towing Site, Trancas Market, Crummer Site, and others.
• Atascadero Mutual Water Company. Participated in development of a groundwater flow and solute
transport model to evaluate the local impacts on unconfined and confined water levels of intentionally
recharging water fromLake Nacimiento in percolation ponds in the vicinity of the Salinas River.
• City of Long Beach Desalination Plant. Project Hydrogeologist for 2005 study to screen potential sites
as to the feasibility of constructing one or more beach wells to produce up to 20 million gallons per day
(MGD) of saline water. The project included development of a groundwater flow model to evaluate the
water extraction potential at two different prospective sites located in and around the Long Beach Port
area. The evaluation included a preliminary assessment of the amount of flow that could be obtained
fromeither an infiltration gallery on the beach or pumping wells on a local pier.
• Chowchilla Water District. Served as Project Manager for a groundwater management study. The
study involved construction and application of a MODFLOWgroundwater model to evaluate potential
benefits to the underlying groundwater basin of increased use of surface water supplies in-lieu of a
portion of groundwater pumping. Additional aspects of the study included identification of factors that
determine whether farmers utilize groundwater or surface water to meet water demands, assessment of
potential incentives for greater use of surface water by farmers, and quantifying the costs of groundwater
pumping relative to cost of surface water.
• San Francisco Public Utilities Commission. Served as Project Manager and lead field hydrogeologist
for the drilling, installation, development, and testing of six 1 2-inch diameter stainless steel water supply
test wells. The overall project involved prepathtion of technical well specifications, construction
management and field inspection, pumping test and water quality data analysis, and report preparation.
• Antelope Valley Groundwater Basin - LACSD. Served on a panel of technical experts to evaluate
groundwater recharge and basin safe yield. Conducted water balance evaluation of treated wastewater
disposal in the basin to estimate contribution to overall groundwater basin recharge. In addition,
conducted an evaluation of potential groundwater flow fromfractured bedrock into the alluvial sediments
of the basin.
• California Water Service Company — City of Visalia Master Plan. Served as a subconsultant on the
consulting teamresponsible for preparing a Water Supply Master Plan. Responsibilities included
preparation of a technical report on groundwater basin characterization, water balance, and running
selected water management scenarios with a MODFLOWgroundwater flow model.
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_ FunI5PUI
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Peter M. Leffler, PG, CHg
Associate Hydrogeologist
▪ SFPUC GASGEM Study. Served as a subconsultant on the consulting teamthat prepared a GASGEM
groundwater basin monitoring programstudy. Project responsibilities included detailed groundwater
subbasin descriptions, identification of a candidate list of well sites for inclusion in the proposed
monitoring program, and evaluation of the candidate well list to help select the final set of monitoring
wells.
• DWR Aquifer Test. Served as Project Manager for a step-drawdown and 24-hour constant rate aquifer
test at a DWR maintenance facility in West Sacramento near the Sacramento River. The testing included
installing pressure transducers in 1 8 monitoring wells to collect pre-testing and recovery water level data
in addition to levels during the pumping phases of the step-drawdown and constant-rate tests. Pumping
test data analyses were conducted and a report prepared to document the pumping test and aquifer test
analysis results.
• Redwood City Building Dewatering. The development of an underground parking garage associated
with construction of a new building required sizing of a groundwater treatment system. The bottomof the
parking structure was approximately 20 feet below the water table and a dewatering systemwas
installed. Available hydrogeologic data were evaluated, field data were collected during construction
dewatering, and a groundwater model was developed and applied to quantify dewatering rates.
• Malibu LaPaz. Served as Project Manager and Project Hydrogeologist to evaluate potential on-site and
off-site groundwater mounding effects fromon-site disposal of treated wastewater effluent via subsurface
drain fields. The study included drilling, soil sample collection and lab testing, monitoring well
construction, slug testing, development of site hydrogeologic conceptual model, development/calibration
of MODFLOWgroundwater flow model, simulation of various scenarios, and documentation of final
results in a report.
• SFPUC Irrigation Well. Served as project manager and field hydrogeologist for the design and
construction of an irrigation well at a school in San Francisco. The well was drilled in Colma Formation
sands to evaluate well yield and water quality for potential use of groundwater as an alternative irrigation
water supply.
• Soledad WWTP (Main Plant). Served as Project Hydrogeologist to evaluate the potential increase in
capacity of treated wastewater percolation ponds related to facility improvements. The study included
evaluate of field data, spreadsheet water balance calculations, and development/application of a
numerical groundwater flow model to assess groundwater mounding and percolation capacity.
• Plains Exploration and Production (PXP). Served as Project Manager and Project Hydrogeologist in a
series of studies to evaluate potential impacts fromdisposal of produced oil field water. These studies
included compilation/review of hydrogeologic data, evaluation/interpretation of field studies related to
aquifer testing and pilot-scale infiltration basin testing, and development of groundwater flow and heat
transport models that included surface water interaction for a study area located downstreamof Lopez
Damin San Luis Obispo County. These studies evaluated the impacts of potential water disposal on
groundwater levels, groundwater temperatures, and surface water temperatures.
m
Shandon Community Plan EIR. Conducted an evaluation of groundwater resources for the Shandon
Community Plan Update in San Luis Obispo County. The study involved hydrogeologic evaluation of
climatic conditions, streamflow, geologic cross-sections, groundwater levels, recharge, discharge,
groundwater quality, and historic/future water demands. Potential impacts of the proposed project were
evaluated using a groundwater flow model to evaluate various scenarios, and potential monitoring and
mitigation measures were evaluated.
• Presidio Parkway. Performed hydrogeologic analyses to address a variety of geotechnical groundwater
issues related to construction that included below ground (tunnels), at grade, and elevated sections of
roadway in San Francisco. Groundwater issues included potential obstruction of groundwater flow to
wetlands due to foundation design (CDSM) and tunnels, alteration of groundwater levels and flow
direction due to excavation of new wetlands channels. The types of analyses performed ranged from
analytical calculations to development/application of numerical groundwater flow models.
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Peter M. Leffler, PG, CHg
Associate Hydrogeologist
m
Robert's Landing. Served as Project Hydrogeologist for environmental site assessment of a former
explosives manufacturing site in San Leandro, California. The investigation involved a number of studies
that included excavation and geologic logging of test pits, drilling/installation and testing of monitoring
wells, soil and groundwater sample collection and analytical testing, and geophysical surveys to identify
old water supply wells.
Speaker, Guest Lecturer
IN Instructor, Groundwater Resources Association of California, Low Yield Aquifer Testing Seminar,
April 26 and 27, 2004. Primary topic covered was conducting pumping tests on fractured bedrock
wells.
• Speaker, Nevada Water Resources Association, Annual Conference, February 2 and 3, 201 1 .
Presentation on technical aspects of groundwater-surface water interaction.
Professional Affiliations
ra National Ground Water Association
• Groundwater Resources Association of California
• Geological Society of America
• American Geophysical Union
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF JEFFREY LINAM
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.corn
Attorneys for Applicant
California-American Water Company
March 8, 2013
306911495.3
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.corn
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 67, Packet Page 87
TABLE OF CONTENTS
Page
I. INTRODUCTION 1
II. SUMMARY OF FINANCING RECOMMENDATIONS 2
III. MPWMD/MPRWA 3
IV. DRA 10
V. OTHER ISSUES 12
1
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3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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26
27
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 68, Packet Page 88
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF JEFFREY LINAM
I. INTRODUCTION
Ql. Please state your name, title, and business address.
Al. My name is Jeffrey T. Linam. I am the Director of Finance for California American
Water. My business address is 1033 B Avenue, Suite 200, Coronado, CA 92118.
Q2. Have you previously provided testimony in this proceeding?
A2. Yes. I provided direct testimony on April 23, 2012, which was served with the
application. I also provided supplemental testimony on January 11, 2013 and an errata to
my supplemental testimony on February 15, 2013.
Q3. Did you previously provide your qualifications in this proceeding?
A3. Yes. I provided my qualifications in my direct testimony. There have been no changes to
that information.
Q4. What is the purpose of your testimony?
A4. The purpose of my testimony is to: (1) provide a summary of the financial and rates
witnesses for California American Water, (2) discuss the public financing proposals set
forth by the Monterey Peninsula Water Management District ("MPWMD") and
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MPWMD's comments on the financing model, (3) evaluate MPWMD's financing
proposals within the context of the Monterey Peninsula Regional Water Authority's
(MPRWA) adopted principles for a contribution of public funds, as articulated in the
testimony of Mr. Jason Burnett, (4) address the financial recommendations made by the
Division of Ratepayer Advocates ("DRA"), and (5) clarify other related issues.
SUMMARY OF FINANCING RECOMMENDATIONS
Q5. Please provide a summary and discuss the role of each of the financial and rates witnesses
for California American Water?
A5. California American Water has six witnesses providing rebuttal testimony in the area of
financing and ratemaking issues. My testimony presents a set of principles, in response to
those adopted by MPRWA, under which California American Water would consider a
public contribution. My testimony also addresses the financial and revenue requirement
impacts to California American Water and its customers of the financing proposals made
by DRA, MPWMD and others. Dave Stephenson, Director of Rates for California
American Water, addresses in his testimony the various ratemaking implications of
parties' proposals. Michael Barrett, a Partner with the international accounting firm of
Ernst & Young, addresses the financial statement and accounting implications of the
financing proposals made by DRA and MPWMD. Michael Reno, Executive Director of
National Tax at Ernst & Young, addresses the tax implications of the financing proposals
made by DRA and MPWMD. William J. Chambers, Ph.D. addresses the financial
markets and rating agency perspectives of the financing proposals made by DRA and
MPWMD. Lastly, American Water Treasurer, Bill Rogers will discuss the current and
future financing that is provided to California American Water by the American Water
Capital Corporation (AWCC) and why the Commission needs to ensure that the financing
proposals do not negatively impact the financial position of California American Water.
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III. MPWMD/MPRWA
Q6. Did you review MPWMD's February 5, 2013 Proposal for Public Contribution of Funds?
A6. Yes. California American Water appreciates MPWMD's efforts in developing its
proposals and its intention to lower costs to customers. MPWMD describes its proposals
in very general terms, however, and California American Water cannot determine at this
point whether the proposals would indeed result in lower costs.
Q7. Under what circumstances would California American Water support a public
contribution option?
A7. California American Water is aware of the rate impact of the Monterey Peninsula Water
Supply Project ("MPWSP"), and will strive to obtain the most effective financing,
including pursuit of a State Revolving Fund ("SRF") loan. In evaluating the best methods
for financing the MPWSP, California American Water must be mindful of the time
constraints it faces and the potential for increased cost or delay due to more complex
financing methods. To this end, California American Water has developed a set of
principles necessary for it to determine that pursuit of a public contribution is in the best
interests of the customers, the Company, and the project.
Q8. The direct testimony of Mr. Jason Burnett sets forth seven principles, adopted by
MPRWA, which should be met in order for California American Water to accept a
contribution of public funds. How do California American Water's set of principles align
with MPRWA's?
A8. In general, California American Water is supportive of the 7 principles articulated by
MPRWA, but would recommend the inclusion of some additional conditions to each of
the principles. California American Water has prepared a more complete response to each
of MPRWA's principles, which is included as Attachment 1. Below is a summary of the
key conditions in response to the order of MPRWA's principles:
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1)
MPRWA Principle #1 — The public contribution lowers costs to ratepayers:
California
American Water is open to the consideration of a public contribution as part of the
method for financing the desalination facility' but would add the following conditions.
First, the annual customer benefits should at a minimum exceed 1.0% of the total
annual revenue requirement of the desalination facility. This would provide a
reasonable benchmark to ensure sufficient benefits accrue to customers. Second, a
decision would need to consider the likelihood that the transaction could be
accomplished. There appear to be some significant hurdles to overcome, based on my
review of the testimony of other California American Water witnesses. For example,
Michael Reno discusses the tax implications of the proposed transactions, while Dave
Stephenson addresses the same issue from a regulatory perspective. California
American Water is open to considering the public contribution but believes it would be
prudent to assess the likelihood of success, thus limiting the risk of stranded costs.
Third, California American Water is concerned that many of the costs are unknown or
may be unforeseen and the company would likely need to request a balancing account
or similar mechanism to ensure recovery. The testimony of Dave Stephenson addresses
issues related to regulatory accounts.
2) MPRWA Principle #2 — The public contribution does not adversely affect other (non-
Monterey area) Cal-Am ratepayers: California American Water strongly supports this
principle and would add that there should be: (1) no balance sheet impacts to the
company from the municipal entities' debt, water rights or other attributes, as discussed
in the testimony of Michael Barrett from Ernst & Young, (2) that it would not increase
the riskiness of California American Water's financial position, and (3) there are no
1 California American Water has proposed that the Cal-Am Only Facilities, its common description for the $106
million pipeline facilities, be addressed separately from a financing perspective, as previously approved by the
Commission and discussed in the rebuttal testimony of David Stephenson. Therefore, references to the desalination
facility in this testimony exclude any capital associated with the Cal-Am Only Facilities.
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adverse impacts to the company from a rating agency perspective. Items (2) and (3) are
discussed in more detail in the testimony of Dr. William Chambers.
3) MPRWA Principle #3 — The public contribution need not require a Cal-Am specific
credit rating: The company does not think that obtaining a separate credit rating is
needed at this time, given California American Water's financial size and credit
metrics. Notwithstanding, until the public contribution proposals are fully vetted and
worked through, it is unclear as to whether a separate credit rating will be needed. Bill
Rogers discusses the potential risks to California American Water customers if the
public contribution proposal were to trigger a separate credit rating.
4) MPRWA Principle #4 — The public contribution should not change Cal-Am's
authorized debt-to-equity ratio: California American Water agrees with this principle.
However, if the public contribution results in additional debt on California American
Water balance sheet, it would not allow the company to stay at its current authorized
ratio unless additional equity investments were allowed. Because of the size of the
capital investment in the desalination project, which ranges between 1.5 to 2.5 times
current Monterey District rate base, it is unclear how California American Water could
get back to an authorized structure without involving investment in other districts in
California.
5) MPRWA Principle #5 — The public contribution should not change Cal-Am's authorized
equity rate of return: California American Water agrees with this principle but clarify
that the current authorized return on equity is 9.99%. Again, based on the testimony of
Michael Barrett and Dr. William Chambers, the current structure might require
California American Water to seek a higher return on equity in order to address the
higher leverage and financial risk.
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6)
MPRWA Principle #6 — Cal-Am should be abrorded the opportunity to invest some
equity to garner its authorized rate of return to account for risk Cal-Am is taking:
As
MPRWA acknowledges, California American Water will be taking on risk with this
project. California American Water still believes that its financing plan strikes an
equitable balance between providing significant benefits to customers through the use
of short term debt, surcharge 2, SRF funds, and property tax offsets, while preserving
the financial position of the company. At the same time, the company recognizes the
importance of public agency support and the urgent need to deliver the project to meet
the State Water Resource Control Board (SWRCB) deadline. If the public contribution
proposals can be accomplished to meet MPRWA and California American Water
principles and allow for a reasonable level of equity investment by the company, the
management of California American Water might consider supporting it. With respect
to the desalination plant, California American Water would consider a public
contribution that would still allow an equity investment equal to 25% of the value of the
plant investment. Example calculations are provided in Attachment 2. As stated
previously, based on the positions articulated by David Stephenson, California
American Water would not consider a public contribution related to the Cal-Am Only
Facilities.
7) MPWRA Principle #7 — The public contribution cannot cause a material delay to the
project: California American Water is willing to work with MPRWA and other
agencies to define how we can achieve the public contribution without a material delay
to the project. California American Water would not be willing to accept a public
contribution if the funds are not available by the time needed for construction. In other
words, the public contribution needs to be available when the amount remaining for
construction equals the amount of the public contribution. Also to the issue of project
completion, California American Water would add that the public contribution should
not impact the California Environmental Quality Act (CEQA) status of the project.
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California American Water would add one additional principle to the MPRWA list. The
company would want to protect against any adverse tax implications that might accrue to
the Monterey District or other customers in California. Based on a review of the testimony
of Michael Reno, there appear to be significant tax challenges with the public contribution
proposals.
Q9. If these conditions are met, should the Commission require California American Water to
pursue public contribution?
A9. Conditions for financing are difficult to predict. California American Water cautions
against locking into a particular financing method at this stage. Even if a public
contribution proposal meets these criteria, if it ends up costing more than the projected
savings, or is not feasible for other reasons, California American Water should be able to
revert to its original financing proposals.
Q10. In his testimony, Robert Larkins provides an analysis of the public contribution option.
Do you agree with his conclusions?
A10. I will leave the assessment of the public contribution options from an accounting, tax,
rating agency and risk perspective to other California American Water witnesses, namely
Michael Barrett, Michael Reno, Dr. William Chambers and Bill Rogers, respectively.
However, to the extent that these proposals raise the long-term debt ratios, result in
imputed debt by the rating agencies and/or increase the level of financial risk to California
American Water, the Commission has an established practice that an appropriate amount
of equity and a greater return on common equity would be required to provide reasonable
confidence in the utility's financial soundness, to maintain and support investment-grade
credit ratings, and provide the utility the ability to raise money necessary for the proper
discharge of its public duty. The other concern is that an increase in California American
Water's cost of equity or equity ratio, would directly impact customers in all districts in
California, a result that the company cannot support and also is in conflict with one of
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MPRWA's 7 principles. An assessment of the capital structure for California American
Water and a Monterey District pro-forma show large increases in the debt ratio under Mr.
Larkins and DRA's proposals. These are included in Attachment 3. The debt ratios for
the Company and the Monterey District pro-forma under the MPWMD and DRA
proposals range from 53% to 74%, versus an authorized of 47%. Finally, Mr. Larkin has
assumed a taxable rate for long-term debt provided by American Water Capital
Corporation (AWCC) at 5.0%. My supplemental testimony of January 11, 2013 updated
this assumption to 4.3%, which is based on recent debt issued by AWCC.
Q11. Under MPWMD's Certificates of Participation (COP) and Securitization options, what
would be the impact if the contribution is significantly lower than estimated?
Al 1. The testimony of Dr. William Chambers and Bill Rogers discusses the high level of fixed
costs that would be necessary to transact the COP and securitization structures. These
costs would likely remain regardless of the size of the public contribution. Mr. Larkins
has assumed a $100 million contribution, which he describes as the maximum public
contribution. However, based on California American Water's required equity
investment, as explained in its response to question 8 above, the Company would agree to
consider a public contribution of up to $43 million under the 9.6 MGD, high capital
scenario case. Additionally, if capital costs come in lower than the high end case and/or
the appropriate discount rate is higher, it could significantly lower the customer benefits
assumed.
Q12. In his testimony, Mr. Larkins states that the MPWMD public contribution proposals
would not have an adverse effect on non-Monterey County District customers. Do you
agree?
Al2. As discussed in response to question 10 above, to the extent that these proposals raise the
long-term debt ratios, result in imputed debt by the rating agencies and/or increase the
level of financial risk to California American Water, there is likely to be an impact on
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customers in other districts outside of Monterey. This would result from an increase to
California American Water's cost of equity or the equity ratio that would be required to
compensate for the additional leverage or risk created by the public contribution.
Q13. In his testimony, Mr. Larkins states that there is no reason to expect a delay with either of
its public contribution proposals. Do you agree?
A13. It is unclear to me and better answered by other California American Water witnesses. As
Bill Rogers and Dr. William Chambers discuss, these are complex transactions and Mr.
Larkins appears to have minimized the challenges involved in transacting, implementing
and complying with the aspects of these financing proposals.
Q14. The testimony of Jason Burnett discusses the possibility of grant funding for the project.
What are your thoughts on that and if such grants materialized would California American
Water accept them and how would they be treated?
A14. California American Water would gladly accept any available grants and treat them as a
contribution. Any grants received would lower the debt and equity required for the
project assuming the Commission decided to maintain Surcharge 2 at the level the
Company proposed in its application and not require grants to reduce the amount of
surcharge 2.
Q15. Does California American Water have any recent experience on accepting grants in its
Monterey District?
A15. Yes, on the San Clemente Dam Reroute and Removal Project approved in D.12-06-040,
California American Water expects to receive up to $34 million in grants to lower the cost
of the project to its Monterey District customers.
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Q16. In the testimony of Mr. Jason Burnett, he also discusses the possibility of funding the
MPWSP through the upcoming and repackaged California State Water Bond. What are
your thoughts on that approach?
A16. Assuming there are no restrictions on timing or availability of funds, California American
Water would seek debt financing at the lowest interest rate and select the appropriate debt
accordingly, whether SRF, water bond, tax exempt or taxable. If bonds were made
available, the Company would evaluate them and utilize them in the way that it has
incorporated SRF funds in its revenue requirement calculations.
IV. DRA
Q17. How would you describe DRA's financing proposal?
A17. Based on my review of DRA's testimony, the primary DRA proposal , for financing
appears to recommend the following:
• "Pursue all reasonable efforts to include the GWR Project in the MPWSP and
construct a 6.4 MGD plant. For the desalination portion of the project, DRA
recommends capital costs be capped at $146 million."
• Reinstate Surcharge #2, as California American Water proposes, but shift the
collection period out and permit customers to earn an equity return on the funds
collected
• Equity financing should not be used to balance the capital structure when SRF
loans are used
• The financing plan for the "Cal-Am Only Facilities" should be the same as that
used for the desalination plant. DRA recommends that these costs be capped at
$58.8 million.
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This scenario would equate to the proposed 6.4 MGD plant using DRA's recommended
capital cost assumptions with SRF and Surcharge 2 financing, which is presented as
Appendix C-5. This example is instructive in what it would mean for California
American Water. Not only would California American Water be precluded from
investing a dollar of equity, but because of DRA's novel concept of having California
American Water shareholders pay Monterey customers for implementation of the
surcharge 2, total California American Water rate base is actually negative. The total
CAW rate base as reported is negative $28.6 million. Said another way, California
American Water is provided the opportunity, under DRA's proposal, to pay its customers
in Monterey for the privilege of building a desalination plant and taking on all
construction, ownership and operating risks associated with the project.
Q18. Please explain what DRA's proposal is for the pipeline investment or "Cal-Am Only
Facilities"?
A18. Here there appears to be some confusion. DRA's written testimony states that the
financing plan for the Cal-Am Only Facilities should be the same as that used for the
desalination plant. However, the calculated revenue requirement on Appendix C-9 is
based on an authorized return on rate base.
Q19. What would be the financial impact of DRA's proposal?
A19. DRA's proposal would negatively impact California American Water's capital structure,
cash flow, credit metrics and other financial measures. The investment is very large
relative to California American Water's balance sheet. To put this in perspective, the total
authorized rate base for California American Water from its 2012 general rate case is
$374 million, $126 million for the Monterey District. To recommend the project be
funded with surcharge 2 and SRF debt only, would significantly increase the leverage and
financial risk to the Company.
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Q20. Are there any other customer impacts that may result if the DRA proposals are adopted?
A20. Yes. DRA's proposals would have a very negative impact on California American
Water's financial position. As such, California American Water and its parent company
would need to re-examine the offer of the $20 million of short term debt to be used during
construction. That offer would likely be rescinded, increasing the interest during
construction (AFUDC).
Q21. DRA claims that adding equity to offset the SRF debt would create a windfall. Do you
agree?
A21. No. If California American Water were to use long-term debt, it would be permitted
under normal ratemaking practices to invest equity to maintain an authorized capital
structure. Mr. Barrett concludes that for accounting and GAAP purposes, the SRF is debt.
Dr. Chambers concludes that for rating purposes, it is debt. Mr. Stephenson cites to
Commission decisions where it has been considered debt and offset with equity. Mr.
Rogers discusses how commissions in other states have treated SRF for capital structure
purposes as debt. The size of the SRF is also important. It appears that DRA's primary
proposal is to fund $100 million of the desalination plant with SRF debt. They also state
that the Cal-Am Only Facilities should be treated the same way.
Q22. Did you discover any incorrect assumptions or calculation errors in the testimony filed by
DRA?
A22. Yes. These issues are presented in Attachment 4.
V. OTHER ISSUES
Q23. Debt equivalence was addressed in the Regional Desalination Project decision, D.10-12-
016. Is this an issue with the MPWSP?
A23. Debt equivalence does not appear to be an issue in this proceeding. As I understand it,
debt equivalence refers to debt that is imputed by rating agencies based on the nature of
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the underlying transaction. The debt may not appear on the balance sheet of the utility but
there may still be a financial or risk impact based on the rating agency determination. If
there would be an imputation of debt by the rating agencies from the public contribution
proposals, then debt equivalency may be relevant and the Commission has addressed this
issue in several decisions on the energy side in California.
Q24. Does this complete your testimony?
A24. Yes.
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ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 82, Packet Page 102
Attachment 1
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
California American Water's Principles MPRWA's Adopted Principles
The ratepayer impact of a public
contribution should reflect all direct and
indirect costs. Cal-Am would consider a
public contribution if the benefits that
accrue to ratepayers are significant
enough to warrant the complexities
inherent in such a transaction. Cal-Am
would consider a public contribution with
the following added conditions: First, the
annual ratepayer benefits would need to
at least exceed 1.0% of the total annual
revenue requirement of the project.
Second, a decision would need to consider
the likelihood that the transaction could
be accomplished and that the risk of
stranded costs is low. Third, due to the
complexity inherent in the proposed
transaction alternatives, Cal-Am is
concerned about the recovery of costs that
may be unforeseen at this time. The
unforeseen nature of these costs and the
need to protect customers in other
districts may necessitate Cal-Am
requesting a balancing account.
1. The public contribution lowers cost to
ratepayers. The MPRWA recognizes
that interest rates will change between
now and the issuance of the CPCN and
will change further between the CPCN
and the need to issue debt or other
financing. The MPRWA encourages the
CPUC to require Cal-Am to accept a
public contribution if and only if doing
so lowers the net present value costs
to ratepayers at the time of financing.
Cal-Am agrees that any acceptance of a
public contribution cannot adversely
impact Cal-Am ratepayers in other
districts. Cal-Am is willing to consider a
public contribution if there are: (1) no
direct balance sheet impacts to the
company from the municipal entities' debt
or from the Water Rights or from any
other attribute, (2) that it would not
increase the riskiness of Cal-Am's financial
position, and (3) in the case where there
are no balance sheet implications, debt
would not be imputed by rating agencies.
2. The public contribution does not
adversely affect other (non-Monterey
area) Cal-Am ratepayers. The MPRWA
recognizes it would not be fair policy if
the structure of the public contribution
benefited Monterey-area ratepayers
but in some way had an adverse effect
on other Cal-Am ratepayers (e.g.,
resulting in higher cost of capital for
Cal-Am projects funded for other
service areas). The MPRWA does not
intend to structure a public
contribution that would have this
unintended effect and we encourage
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Attachment 1
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
the CPUC to stipulate this also.
The company does not think that obtaining
a separate credit rating is needed at this
time, given Cal-Am's financial size and
credit metrics. Notwithstanding, until
proposals are fully vetted and worked
through, it is unclear as to whether a
separate credit rating will be needed. If a
separate credit rating is required, it may
have potential implication to future debt
and equity costs for customers in all
districts in California. Cal-Am currently
accesses financing at cost through
American Water Capital Corp. ('AWCC"),
an affiliate of Cal-Am. If AWCC is unable or
unwilling to provide the lowest cost debt
financing, Cal-Am must independently
access the capital markets as AWCC has no
obligation to permanently provide short-
term and long-term financing at cost to
Cal-Am.
3. The public contribution need not
require a Cal-Am specific credit rating.
American Water has a credit rating but
it is our understanding that Cal-Am
does not currently have a separate
credit rating and they do not want to
go through the process of getting one.
The MPWRA does not object to this
position and encourages the CPUC to
stipulate that any public contribution
be structured without needing a Cal-
Am-specific credit rating.
Agreed.
4. The public contribution should not
change Cal-Am's authorized debt-to-
equity ratio. MPWRA understands that
Cal-Am is authorized a debt-to-equity
ratio of 47% to 53%, as set in a
separate PUC proceeding and, while
we reserve the right to weigh in on
that issue at a future point in the
relevant venue/proceeding, we accept
the ratio of 47% to 53% as given for the
purposes of the current application
Agreed. However, Cal-Am's authorized
rate of return on equity is 9.99%.
5. The public contribution should not
change Cal-Am's authorized equity rate
of return. MPRWA understands that
Cal-Am's authorized rate of return of
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Attachment 1
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
up to 9.9% is set in a separate CPUC
proceeding and , while we reserve the
right to weigh in on that issue at a
future point in the relevant
venue/proceeding, we accept the rate
of 9.9% as given for the purposes of
the current application.
As MPRWA acknowledges, California
American Water will be taking on risk with
this project. California American Water
still believes that its' financing plan strikes
an equitable balance between providing
significant benefits to customers through
the use of short term debt, surcharge 2,
SRF funds and property tax offsets, while
preserving the financial position of the
company. At the same time, the company
recognizes the importance of public
agency support and the urgent need to
deliver the project to meet the State
Water Resource Control Board (SWRCB)
deadline. If the public contribution
proposals can be accomplished to meet
MPRWA and California American Water
principles and allow for a reasonable level
of equity investment by the company, the
management of California American Water
might consider supporting it. With respect
to the desalination plant, California
American Water would consider a public
contribution that would still allow an
equity investment equal to 25% of the
value of the plant investment. California
American Water would not consider a
public contribution related to the Cal-Am
Only Facilities.
6. Cal-Am should be afforded the
opportunity to invest some equity to
garner its authorized rate of return to
account for risk Cal-Am is taking. The
MPRWA is not seeking to completely
replace all Cal-Am equity with a public
contribution because we recognize the
CPUC's need to establish a stable, fair
investment climate for companies
making investments in infrastructure in
the state. The MPRWA accepts that
Cal-Am will be taking on some risk with
this project and that some equity
investment is likely in the CPUC's policy
interest, Cal-Am's interest, and in the
interest of Cal-Am's ratepayers to
make sure Cal-Am has a financial stake
in the successful completion and
operation of the Cal-Am project.
Agreed. California American Water is
willing to work with MPRWA and other
7. The public contribution cannot cause a
material delay to the project. Given
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Attachment 1
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
agencies to define how we can achieve the
the CDO, we recognize the overarching
public contribution without a material
need to avoid any project delay.
delay to the project. California American
Therefore, MPRWA's believes the
Water would not be willing to accept a
CPUC should only require Cal-Am to
public contribution if the funds are not
accept a public contribution if doing so
available by the time needed for
does not delay the construction of the
construction. In other words, the public
contribution needs to be available when
the amount remaining for construction
equals the amount of the public
contribution. Also to the issue of project
completion, California American Water
would add that the public contribution
should not impact the California
Cal-Am Project.
Environmental Quality Act (CEQA) status of
the project
Cal-Am is willing to consider a public
contribution if the tax impacts are
considered as part of the ratepayer benefit
determination and recoverable in rates.
Cal-am wants to protect against any
adverse tax implications that might accrue
to Cal-Am customers.
307165218.1
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ATTACHMENT 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 87, Packet Page 107
Attachment 2
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
Comparison of Equity Investments
9.6 MGD Plant 6.4 MGD Plant
CAW
Filed (1)
Potential Public Contribution CAW
Filed ( 1 )
Potential Public Contribution
High Probable Low High Probable Low
Total Project Capital (2) 276.3 276.3 220.1 186.4 221.4 221.4 176.2 149.2
Surcharge 2 (103.0) (103.0) (103.0) (103.0) (103.0) (103.0) (103.0) (103.0)
Remaining Funding 173.3 173.3 117.1 83.4 118.4 118.4 73.2 46.2
California American Equity (3) 91.8 69.1 55.0 44.2 62.8 55.4 38.8 24.5
SRF Debt 81.5 61.3 48.8 39.2 55.6 49.1 34.4 21.7
Public Agency Contribution 0.0 43.0 13.3 0.0 0.0 14.0 0.0 0.0
Remaining Funding 173.3 173.3 117.1 83.4 118.4 118.4 73.2 46.2
Note: (1) CAW Filed are the scenarios CAW is proposing with Surcharge 2, 53% CAW Equity and 47% SRF Debt
(2) All project capital numbers include AFUDC and exclude the test well
(3) Minimum CAW equity amount is 25% when a Public Agency Contribution is made, if no Public Agency Contribution, then balance
funded 53% with CAW equity and 47% with SRF Debt
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ATTACHMENT 3
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 89, Packet Page 109
Attachment 3
Rebuttal Testimony of Jeffrey T. Linam
Monterey Peninsula Water Supply Project (A.12-04-019)
Comparison of California American Water Capital Structure
($ millions)
2012 Authorized
Cap Structure (1) CAW( 2 )
9.6 MGD
CAW(2)
6.4 MGD
Larkins (3) DRA
(4)
Long Term Debt
Stockholder's Equity
Total Capitalization
Cal-Am Pro-Forma with MPWSP
$142
160
$301
$191
102
$293
$114
129
$242
$148
(18)
$130
Long Term Debt $278 $420 $469 $392 $426
Stockholder's Equity 313 473 415 442 295
Total Pro-Forma Capitalization $591 $892 $884 $833 $721
Cal-Am Pro-Forma Debt % 47.0% 53.0% 47.0% 59.0%
Cal-Am Pro-Forma Equity % 53.0% 47.0% 53.0% 41.0%
Monterey Disctrict Pro-Forma (5)
Long Term Debt $92 $233 $282 $206 $239
Stockholder's Equity 103 263 206 232 86
Total Pro-Forma Capitalization $195 $496 $488 $437 $325
Monterey District Pro-Forma Debt % 47.0% 57.9% 47.0% 73.7%
Monterey District Pro-Forma Equity % 53.0% 42.1% 53.0% 26.3%
Notes: (1) Based on current authorized per D.12-07-009
(2) AW Scenarios assume High-end capital scenario, include Cal-Am Only Facilities and use 47% SRF debt
(3) Larkins Exhibit WD-3 (E) plus Cal-Am Only Facilities using 47% SRF debt, public contribution is debt on balance sheet
(4) DRA Scenario C-5 - added Cal-Am Only Facilties funded with 100% SRF debt (original C-5 proposal showed negative rate base)
(5) Pro-forma results for Monterey are assumed to be 33% Cal-Am capital structure
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ATTACHMENT 4
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 91, Packet Page 111
Rebuttal Testimony of Jeffrey T. Linam
Attachment 4
Page
Reference DRA Number
Issue
1. DRA plant capital numbers include the test well, CAW does
not.
2. O&M costs are 2012 numbers included in a year 1 (2017/2018)
revenue requirement. Amounts should be inflated.
3. O&M costs include 100% of membrane costs and repair &
maintenance costs in year 1. Due to warranties, CAW includes
0% and 20% respectively of the estimate in year 1.
4. O&M costs ignore the $2M of avoided costs.
5 DRA T able
5. 6.4MGD revenue requirement of $37.94 is incorrect. O&M
cost should be $4.23M, not $7.19M. GWR cost is OK.
Subtracting $0.7M for the test well and $10.1M for CAW-only
facilities, gets back to the revenue requirement in Appendix C-
7 of $24.2M ($37.94 - $7.19 + $4.23 -$0 .7 -$10.1 ).
6. 9.6MGD revenue requirement of $35.02 is incorrect. O&M
cost should be $5.66M, not $8.82M. Subtracting $0.7M for the
test well and $10.1M for CAW-only facilities, gets back to the
revenue requirement in Appendix C-3 of $21.1M ($35.02 -
$8.82 + $5.66 -$0 .7 -$10.1 ).
1. DRA plant capital numbers include the test well, CAW does not
2. O&M costs are 2012 numbers included in a year 1 (2017/2018)
revenue requirement. Amounts should be inflated.
3. O&M costs ignore the $2M of avoided costs
4. O&M costs include 100% of membrane costs and repair &
6 CAW Table
maintenance costs in year 1. Due to warranties, CAW includes
0% and 20% respectively of the estimate in year 1.
5. Total revenue requirement appears to double count O&M
costs by including in both the "Desal Plant" number and on its
own line item.
6-3 L14 $99.1 million
This is the previous surcharge amount. The current amount is $103
million
6-6 L8-9 Table
Table shows results for 5.4MGD plant, which is not the plant size
proposed.
6-11 Table 6-3
DRA's recommended surcharge 2 collection schedule results in only
$70M of surcharge vs. $103M of surcharge as proposed by CAW.
The surcharge 2 numbers are from a prior version of the model (v5.6)
and don't reflect the changes implemented after the cost workshop
(different plant sizes, change in timing, etc.)
6-12 CAW Table
Unclear where the short-term debt numbers come from. The model
calculates the cash needs after receiving Surcharge 2. The first $20M
of those cash needs are funded with Short Term debt.
6-16 L13 5.0% The current assumption for CAW cost of debt is 4.3%.
1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 92, Packet Page 112
6-16 Table
Table shows results for 5.4MGD plant, which is not the plant size
proposed.
134, 138,
150, 154
May-16, 4.0%
and 20 years
Are these actual market terms and planned date of SRF proceeds
(using public contribution inputs to capture SRF to remove from CAW
capital structure)? SRF rate used in model is 2.5% and the SRF funds
are drawn as needed. A bullet contribution would potentially require
additional short term financing, depending on the timing of the
proceeds. The date, rate and term were default placeholders in the
model when it was sent out by CAW.
163
Calculation of
Cal-Am Only Rev
Requirement
1. Currently authorized ROR is 8.41% - 8.04% was from CAW's
previous GRC.
2. DRA reduced the depreciable life to 40 years from CAW's
estimate of 75 years. This increases revenue requirement.
3. DRA ignores property taxes of $0.7M (assuming DRA's lower
capital amount).
4. DRA calculation multiplies rate base by the authorized cost of
capital and then grosses up the entire amount by 1.7 rather
than just the equity piece. This overstates the revenue
requirement.
5. CAW calculates the correct revenue requirement to be $9.2M
rather than $10.2M (using DRA's assumptions).
166 $146,985,786
Does not agree to total of Base Construction Costs, Implementation
Costs & Row/Easement Costs. DRA number is too low by $300,000
166 $24,592,832
DRA is using a contingency of 20% of most probable capital costs
without contingency. Their most probable capital costs are
$146,985,786, and 20% of that would be $29,397,157. Their
contingency amount of $24,592,832 is only 16.7%, not 20%
169 $20,210,747.61
DRA is using a contingency of 20% of most probable capital costs
without contingency. Their most probable capital costs are
$124,495,362, and 20% of that would be $24,899,072. Their
contingency amount of $20,210,747.61 is only 16.2%, not 20%
184
$5,235,000
$6,630,000
Show 2,210 acre feet of GWR needed, but use 3,500 acre feet
throughout the model at the $2,500 per AF price.
307165207.1
2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 93, Packet Page 113
PROOF OF SERVICE
I, Cinthia A. Velez, declare as follows:
I am employed in the City and County of San Francisco, California. I am over the
age of eighteen years and not a party to this action. My business address is MANATT, PHELPS
& PHILLIPS, LLP, One Embarcadero Center, 30th Floor, San Francisco, California 94111-
3719. On March 8, 2013, I served the within:
1. REBUTTAL TESTIMONY OF MICHAEL E. BARRETT OF ERNST &
YOUNG, LLP ON BEHALF OF CALIFORNIA-AMERICAN WATER
COMPANY
2. REBUTTAL TESTIMONY OF WILLIAM J. CHAMBERS
3. REBUTTAL TESTIMONY OF PETER M. LEFFLER, P.G., C.HG
4. REBUTTAL TESTIMONY OF JEFFREY LINAM
5. REBUTTAL TESTIMONY OF MICHAEL J. RENO OF ERNST &
YOUNG, LLP ON BEHALF OF CALIFORNIA-AMERICAN WATER
COMPANY
6. REBUTTAL TESTIMONY OF WILLIAM D. ROGERS
7. REBUTTAL TESTIMONY OF ERIC J. SABOLSICE
8. REBUTTAL TESTIMONY OF DAVID P. STEPHENSON
9. REBUTTAL TESTIMONY OF RICHARD C. SVINDLAND
on the interested parties in this action addressed as follows:
See attached service list
(BY CPUC E-MAIL SERVICE) By transmitting such document
electronically from Manatt, Phelps & Phillips, LLP, San Francisco,
California, to the electronic mail addresses listed above. I am readily familiar
with the practice of Manatt, Phelps & Phillips, LLP for transmitting
documents by electronic mail, said practice being that in the ordinary course
of business, such electronic mail is transmitted immediately after such
document has been tendered for filing. Said practice also complies with Rule
2.3(b) of the Public Utilities Commission of the State of California and all
protocols described therein.
307165428.1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 94, Packet Page 114
(BY OVERNIGHT MAIL) By placing such document(s) in a sealed envelope,
for collection and overnight mailing at Manatt, Phelps & Phillips, LLP, San
Francisco, California following ordinary business practice. I am readily familiar
with the practice at Manatt, Phelps & Phillips, LLP for collection and processing
of overnight service mailing, said practice being that in the ordinary course of
business, correspondence is deposited with the overnight messenger service,
Federal Express, for delivery as addressed.
I declare under penalty of perjury under the laws of the State of California that the
foregoing is true and correct and that this declaration was executed on March 8, 2013, at San
Francisco, California.
/s/ Cinthia A. Velez
Cinthia A. Velez
- 2
307165428.1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 95, Packet Page 115
CPUC - Service Lists - A1204019

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RUSSELL M. MCGLOTHLIN
BROWNSTEIN HYATT FARBER SCHRECK, LLP
21 EAST CARRILLO STREET
SANTA BARBARA, CA 93101
FOR: MONTEREY PENINSULA REGIONAL WATER
AUTHORITY
RON WEITZMAN
PRESIDENT
WATER PLUS
PO BOX 146
CARMEL, CA 93921
FOR: WATER PLUS
NANCY ISAKSON
PRESIDENT
SALINAS VALLEY WATER COALITION
3203 PLAYA COURT
MARINA, CA 93933
FOR: SALINAS VALLEY WATER COALITION
(SVWC)
NORMAN C. GROOT
MONTEREY COUNTY FARM BUREAU
PO BOX 1449 / 931 BLANCO CIRCLE
SALINAS, CA 93902-1449
FOR: MONTEREY COUNTY FARM BUREAU
BOB MCKENZIE
WATER ISSUES CONSULTANT
COALITION OF PENINSULA BUSINESSES
PO BOX 223542
CARMEL, CA 93922
FOR: COALITION OF PENINSULA BUSINESSES
GEORGE T. RILEY
CITIZENS FOR PUBLIC WATER
1198 CASTRO ROAD
MONTEREY, CA 93940
FOR: CITIZENS FOR PUBLIC WATER
ROBERT WELLINGTON
WELLINGTON LAW OFFICES
857 CASS STREET, STE. D
MONTEREY, CA 93940
FOR: MONTEREY REGIONAL WATER POLLUTION
CONTROL AGENCY (MRWPCA)
THOMAS FRUTCHEY
CITY MANAGER
CITY OF PACIFIC GROVE
300 FOREST AVENUE
PACIFIC GROVE, CA 93950
FOR: CITY OF PACIFIC GROVE
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DAVID C. LAREDO
DE LAY & LAREDO
606 FOREST AVENUE
PACIFIC GROVE, CA 93950-4221
FOR: MONTEREY PENINSULA WATER
MANAGEMENT DISTRICT (MPWMD)
GABRIEL M.B. ROSS
ATTORNEY
SHUTE, MIHALY & WEINBERGER LLP
396 HAYES STREET
SAN FRANCISCO, CA 94102
FOR: SURFRIDER FOUNDATION
JONATHAN P. KNAPP
CALIF PUBLIC UTILITIES COMMISSION
LEGAL DIVISION
ROOM 5129
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
FOR: DRA
JOHN H. FARROW
M.R. WOLFE & ASSOCIATES, P.C.
1 SUTTER STREET, STE. 300
SAN FRANCISCO, CA 94108
FOR: LANDWATCH MONTEREY COUNTY
LAURENS H. SILVER
ATTORNEY
CALIFORNIA ENVIRONMENT LAW PROJECT
PO BOX 667
MILL VALLEY, CA 94942
FOR: SIERRA CLUB
JONAS MINTON
WATER POLICY ADVISOR
PLANNING AND CONSERVATION LEAGUE
1107 - 9TH STREET, SUITE 901
SACRAMENTO, CA 95814-3618
FOR: PLANNING AND CONSERVATION LEAGUE
Information Only
BARTON LOUNSBURY
ATTORNEY AT LAW
ROSSMANN AND MOORE, LLP
EMAIL ONLY
EMAIL ONLY, CA 00000
CARLOS RAMOS
1048 BROADWAY AVENUE
SEASIDE, CA 93955
FOR: LATINO WATER-USE
COALITION-MONTEREY PENINSULA/LATINO
SEASIDE MERCHANTS ASSOC./COMMUNIDAD EN
ACCION
SARAH E. LEEPER
ATTORNEY
CALIFORNIA AMERICAN WATER COMPANY
333 HAYES STREET, STE. 202
SAN FRANCISCO, CA 94102
FOR: CALIFORNIA-AMERICAN WATER COMPANY
MARK FOGELMAN
FRIEDMAN & SPRINGWATER LLP
33 NEW MONTGOMERY ST., STE. 290
SAN FRANCISCO, CA 94105
FOR: MARINA COAST WATER DISTRICT
MICHAEL WARBURTON
EXEC. DIR.
THE PUBLIC TRUST ALLIANCE
187 EAST BLYTHEDALE AVENUE
MILL VALLEY, CA 94941
FOR: THE PUBLIC TRUST ALLIANCE
DAN L. CARROLL
ATTORNEY AT LAW
DOWNEY BRAND, LLP
621 CAPITOL MALL, 18TH FLOOR
SACRAMENTO, CA 95814
FOR: COUNTY OF MONTEREY/MONTEREY COUNTY
WATER RESOURCES AGENCY
BEATRIZ GARZA
CALIFORNIA AMERICAN WATER
EMAIL ONLY
EMAIL ONLY, CA 00000
EDWARD FITZGERALD

EDWARD ONEILL
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GORDON & REES LLP

DAVIS WRIGHT TREMAINE LLP
EMAIL ONLY

EMAIL ONLY
EMAIL ONLY, CA 00000

EMAIL ONLY, CA 00000
JOE GEEVER
WATER PROGRAMS MANAGER
SURFRIDER FOUNDATION
EMAIL ONLY
EMAIL ONLY, CA 00000
KENNETH STRONG
GORDON & REES LLP
EMAIL ONLY
EMAIL ONLY, CA 00000
SARAH DAMRON
SURFRIDER FOUNDATION
EMAIL ONLY
EMAIL ONLY, CA 00000
JAN DRISCOLL
ATTORNEY AT LAW
ALLEN MATKINS LECK GAMBLE MALLORY
501 W. BROADWAY, 15TH FLOOR
SAN DIEGO, CA 92101
DON EVANS
MCWO
8550 WEST CHARLESTON, STE. 102-394
LAS VEGAS, NV 89117
ANTHONY J. CERASUOLO
CALIFORNIA AMERICAN WATER COMPANY
NATSIS 1033 B AVENUE,STE. 200
SAN DIEGO, CA 92118
DAVID SOUSA
CALIFORNIA AMERICAN WATER COMPANY
1033 B AVENUE, STE. 200
CORONADO, CA 92118
ROBERT G. MACLEAN
PRESIDENT
CALIFORNIA AMERICAN WATER COMPANY
1033 B AVENUE, SUITE 200
CORONADO, CA 92118
KEVIN TILDEN
CALIFORNIA-AMERICAN WATER COMPANY
1033 B AVENUE, SUITE 200
CORONADO, CA 92118
TIMOTHY J. MILLER, ESQ.
CORPORATE COUNSEL
CALIFORNIA AMERICAN WATER COMPANY
1033 B. AVENUE, SUITE 200
CORONADO, CA 92118
PAUL L. FINDLEY
RBF CONSUILTING
9755 CLAIREMONT MESA BLVD., STE. 100
SAN DIEGO, CA 92124
RYAN C. DRAKE
BROWNSTEIN'HYATT FARBER SCHRECK, LLP
21 EAST CARRILLO STREET
SANTA BARBARA, CA 93101
CHARLES J. MCKEE
COUNTY COUNSEL
COUNTY OF MONTEREY
168 WEST ALISAL ST.
SALINAS, CA 93901
ANGELA HOWE
SURFRIDER FOUNDATION
PO BOX 6010
SAN CLEMENTE, CA 92674
FRANCES M. FARINA
ATTORNEY AT LAW
DE LAY & LAREDO
389 PRINCETON AVENUE
SANTA BARBARA, CA 93111
FOR: MONTEREY PENINSULA WATER
MANAGEMENT DISTRICT
PAUL HART
WATERPLUS
16 WEST GABILAN STREET
SALINAS, CA 93901
AMY WHITE

DAVID E. CHARDAVOYNE
LANDWATCH MONTEREY COUNTY

GENERAL MANAGER
PO BOX 1876

MONTEREY COUNTY WATER RESOURCES AGENCY
SALINAS, CA 93902

PO BOX 930
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SALINAS, CA 93902
JANET BRENNAN
LANDWATCH MONTEREY COUNTY
PO BOX 1876
SALINAS, CA 93902
LLOYD W. LOWREY, JR.
JOLAND HAMERLY ETIENNE & HOSS
PO BPX 2510
SALINAS, CA 93902-2510
OFFICE MANAGER
SALINAS VALLEY WATER COALITION
PO DRAWER 2670
GREENFIELD, CA 93927
KEITH ISRAEL
GENERAL MGR.
MONTEREY REGIONAL WATER POLLUTION
5 HARRIS COURT, BLDG. D
MONTEREY, CA 93940
ANTHONY J. TERSOL
SURFRIDER FOUNDATION - MONTEREY CHAPTER
319 FOREST AVE.
PACIFIC GROVE, CA 93950
HEIDI A.. QUINN
DE LAY & LAREDO
606 FOREST AVENUE
PACIFIC GROVE, CA 93950
JULIE ENGELL
LANDWATCH MONTEREY COUNTY
PO BOX 1876
SALINAS, CA 93902
LLOYD W. LOWREY, JR.
NOLAND, HAMERLY, ETIENNE & HOSS
PO BOX 2510
SALINAS, CA 93902-2510
JAMES HEITZMAN
GENERAL MANAGER
MARINA COAST WATER DISTRICT
11 RESERVATION RD
MARINA, CA 93933
DAVID J. STOLDT
GEN. MGR.
MONTEREY PENINSULA WATER MANAGEMENT
PO BOX 85
MONTEREY, CA 93942-0085
CATHERINE BOWIE
CALIFORNIA-AMERICAN WATER COMPANY
511 FOREST LODGE ROAD, SUITE 100
MONTEREY, CA 93950
MICHAEL BOWHAY
MONTEREY PENINSULA COUNTRY CLUB
PO BOX 2090
PEBBLE BEACH, CA 93953-2090
JAVIER NARANJO
CALIFORNIA-AMERICAN WATER COMPANY
333 HA'YES ST., STE. 202
SAN FRANCISCO, CA 94102
NICHOLAS SUBIAS
CALIFORNIA-AMERICAN WATER COMPANY
333 HAYES STREET, SUITE 202
SAN FRANCISCO, CA 94102
MARGARET BAILES
CALIFORNIA-AMERICAN WATER COMPANY
333 HAYES STREET, STE. 202
SAN FRANCISCO, CA 94102
ROGER B. MOORE
PARTNER
ROSSMANN AND MOORE, LLP
380 HAYES STREET
SAN FRANCISCO, CA 94102
ERIC ZIGAS

ANNA SHIMKO
ENVIRONMENTAL SCIENCE ASSOCIATES/WATER

SEDGWICK LAW
225 BUSH STREET

333 BUSH STREET, 30TH FLOOR
SAN FRANCISCO, CA 94104

SAN FRANCISCO, CA 94104-2834
SIGRID WAGGENER

RUTH STONER MUZZIN
SEDGWICK LAW

FRIEDMAN & SPRINGWATER LLP
333 BUSH STREET, 30THFL.

33 NEW MONTGOMERY, STE. 290
SAN FRANCISCO, CA 94104-2834

SAN FRANCISCO, CA 94105
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BRIAN J. MOONEY
ATTORNEY
GORDON & REES LLP
275 BATTERY STREET, SUITE 2000
SAN FRANCISCO, CA 94111
EDWARD O'NEILL
DAVIS WRIGHT TREMAINE LLP
505 MONTGOMERY STREET, SUITE 800
SAN FRANCISCO, CA 94111-6533
MARTHA H. LENNIHAN
LENNIHAN LAW, APC
1661 GARDEN HIGHWAY, STE. 102
SACRAMENTO, CA 95833
FOR: MONTEREY REGIONAL WATER POLLUTION
CONTROL AGENCY (MRWPCA)
LORI ANNE DOLQUEIST, ESQ
ATTORNEY AT LAW
MANATT, PHELPS & PHILLIPS, LLP
ONE EMBARCADERO CENTER, 30TH FL.
SAN FRANCISCO, CA 94111
ROBERT E. DONLAN
ELLISON, SCHNEIDER & HARRIS, L.L.P.
2600 CAPITOL AVENUE, SUITE 400
SACRAMENTO, CA 95816-5905
RICHARD SVINDLAND
CALIFORNIA-AMERICAN WATER COMPANY
4701 BELOIT DRIVE
SACRAMENTO, CA 95838
State Service
JOHN BEEMER
CPUC
LEGAL
ROOM 4300
SAN FRANCISCO, CA 00000
JONATHAN KOLTZ
CALIFORNIA PUBLIC UTILITIES COMMISSION
EMAIL ONLY
EMAIL ONLY, CA 00000
PRANEET ROW
CPUC
DRA - WATER BRANCH
EMAIL ONLY
EMAIL ONLY, CA 00000
ALLISON BROWN
CALIF PUBLIC UTILITIES COMMISSION
EXECUTIVE DIVISION
ROOM 5206
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
ANDREW KOTCH
CALIF PUBLIC UTILITIES COMMISSION
EXECUTIVE DIVISION
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505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
RYNINTA ANATRYA
CPUC
DRA - WATER BRANCH
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AMBER WHITE
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
ROOM 4208
505 VAN NESS AVENUE
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DIANA BROOKS
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
ROOM 4208
505 VAN NESS AVENUE
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GARY WEATHERFORD
CALIF PUBLIC UTILITIES COMMISSION
DIVISION OF ADMINISTRATIVE LAW JUDGES
ROOM 5020
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
INDERDEEP ATWAL
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
ROOM 4208
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
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JONATHAN J. REIGER
CALIF PUBLIC UTILITIES COMMISSION
LEGAL DIVISION
ROOM 5035
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
LYNN A. MAACK
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
AREA 4-B
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
PETER V. ALLEN
CALIF PUBLIC UTILITIES COMMISSION
LEGAL DIVISION
ROOM 5031
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
STEPHEN ST. MARIE
CALIF PUBLIC UTILITIES COMMISSION
EXECUTIVE DIVISION
ROOM 5203
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
LESTER WONG
CALIF PUBLIC UTILITIES COMMISSION
EXECUTIVE DIVISION
ROOM 5204
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
MICHAEL ZELAZO
CALIF PUBLIC UTILITIES COMMISSION
WATER AND SEWER ADVISORY BRANCH
ROOM 3-B
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
RAVI KUMRA
CALIF PUBLIC UTILITIES COMMISSION
WATER AND SEWER ADVISORY BRANCH
AREA 3-C
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
SUZIE ROSE
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
ROOM 4208
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
TERENCE SHIA
CALIF PUBLIC UTILITIES COMMISSION
WATER BRANCH
ROOM 4208
505 VAN NESS AVENUE
SAN FRANCISCO, CA 94102-3214
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 101, Packet Page 121
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF MICHAEL J. RENO OF ERNST & YOUNG, LLP
ON BEHALF OF CALIFORNIA-AMERICAN WATER COMPANY
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
307164215.1
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 102, Packet Page 122
TABLE OF CONTENTS
Pa2e
I. INTRODUCTION 1
II. PURPOSE OF REBUTTAL TESTIMONY 2
III. OVERVIEW 2
IV. TAXATION AND THE PUBLIC AGENCY FINANCING PROPOSALS 4
V. CONCLUSION 12
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF MICHAEL J. RENO OF ERNST & YOUNG, LLP
ON BEHALF OF CALIFORNIA-AMERICAN WATER COMPANY
I. INTRODUCTION
Q1 . Please state your name, business address and position.
Al . My name is Michael Reno. I am an executive director in Ernst & Young LLP's National
Energy Practice. My business address is 1101 New York Avenue, NW, Washington,
District of Columbia, 20005-4213.
Q2. On whose behalf are you testifying in this proceeding?
A2. I am testifying on behalf of California-American Water Company ("California American
Water").
Q3. What is your educational and professional background?
A3. I graduated from the Kansas State University with a Bachelor of Science degree in
Business Administration, with an emphasis in accounting, in 1987, and a Masters of
Science, with an emphasis in accounting, in 1988. After completion of my Masters of
Accounting, I joined Deloitte Tax LLP, formerly Deloitte Haskins & Sells. In 2012, I
joined Ernst & Young LLP as an executive director in the National Energy Practice. I am
a Certified Public Accountant, licensed in the District of Columbia and in Virginia. I have
practiced public accounting for over 24 years. In my practice, I provide tax services to the
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regulated water, electric and gas utilities. I regularly assist clients with tax planning,
supporting and explaining tax reporting positions, and tax return reviews. My experience
includes providing advice on accounting for income taxes and perfon -ning tax provision
reviews. In addition, I regularly consult with companies regarding tax accounting and its
impact on the rate setting process as well as compliance with the normalization rules.
Additionally, I am a frequent speaker at industry seminars and conferences on the topic of
tax accounting for rate-regulated utilities. I have spoken at the Edison Electric Institute
tax committee meetings and the American Gas Association tax committee meetings in
addition to other industry meetings.
II. PURPOSE OF REBUTTAL TESTIMONY
Q4. What is the purpose of your rebuttal testimony in this proceeding?
A4. The purpose of my testimony is to explain the general tax principles and the potential tax
consequences associated with the different proposals for financing the Monterey
Peninsula Water Supply Project ("MPWSP" or "Project"). Since the parties have not
agreed to pursue a specific financing proposal at this time, my testimony does not offer an
opinion on the actual tax consequences of any specific proposal. Rather, I will discuss the
potential tax consequences of certain proposals.
III. OVERVIEW
Q5. Can you explain your understanding of the financing proposals?
A5. Yes, each proposal contains two to four elements, the sum of which will fund the Project.
The first element, is the equity component, which represents a direct investment in the
Project by California American Water. The second element is Surcharge 2, which is the
portion of the Project financed through a direct contribution of funds from customers.'
I See generally the Direct Testimony of David P. Stephenson filed April 23, 2012, Sections IV, V, and VI. The
Division of Ratepayer Advocates ("DRA") proposes certain changes to Surcharge 2. See generally the DRA Report
on California-American Water Company's Application For The Monterey Peninsula Water Supply Project, A.12-04-
019 filed February 22, 2013, Chapter 6. Please note that this contribution from customers is distinct from the public
agency "contribution" that I also discuss in my testimony.
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The third element is the debt component, which is the portion of the Project funded by
borrowed funds. The fourth element involves the public agency financing proposals,
which involve a proposed "contribution" of funds to California American Water by a
public agency such as the Monterey Peninsula Water Management District ("MPWMD"),
a Special Purpose Entity (an "SPE") established by a governmental entity or another
governmental entity.
Note that I use the term "contribution" in a non-technical sense when discussing the
public agency financing proposals. As explained later in this testimony, and in Michael
Barrett's testimony, the proceeds California American Water receives from the public
agency may be either sales proceeds or loan proceeds and the classification of those
proceeds may have significant tax and accounting consequences.
Q6. Can you explain the public agency financing proposals?
A6. Mr. Larkins, on behalf of MPWMD, offers several public agency financing proposals. 2
Specifically, Mr. Larkins recommends: (1) that California American Water engage in tax-
exempt securitization borrowing; or (2) that California American Water engage in
traditional tax-exempt borrowing through the issuance of tax-exempt Certificates of
Participation ("COPs") by MPWMD. 3
The testimonies of Mr. Larkins, Mr. Stoldt (also on behalf of MPMWD), and DRA all
assume that the use of tax-exempt securitization borrowing and traditional tax-exempt
borrowing through the issuance of tax-exempt COPs by MPWMD would be treated as a
public agency "contribution" for ratemaking purposes. According to MPWMD and DRA,
2 See generally the Direct Testimony of Robert Larkins, filed February 22, 2013. Mr. Larkin's testimony indicates
that his alternatives are designed to reduce or replace the portion of the Project funded by Surcharge 2 but it appears
that he also intends for his alternatives to reduce or replace portions of the debt component proposed by California
American Water as well.
3 Mr. Stoldt, on behalf of MPWMD, also discusses tax-exempt securitization borrowing and tax-exempt Certificates
of Participation in detail. See generally the Direct Testimony of David J. Stoldt, filed February 22, 2013.
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if those alternatives are considered public agency "contributions," the portion of the
Project funded by either of those methods would be excluded from the rate base as well as
the book basis of the Project. As I will explain, there is uncertainty about tax treatment of
these alternatives. If the "contribution" proceeds are subject to federal and state income
tax, the amount available as a cost offset to rate base will be reduced by 40% or more.
IV. TAXATION AND THE PUBLIC AGENCY FINANCING PROPOSALS
Q7. Can you briefly explain the tax-exempt securitization borrowing proposed by MPWMD?
A7. Yes, under the proposed tax-exempt securitization borrowing, the California legislature
would authorize the California Public Utilities Commissoin to issue a financing order.
Pursuant to the financing order, California American Water would acquire an intangible
property right authorizing it to impose and collect a non-bypassable surcharge on
California American Water customers sufficient to pay-off tax-exempt debt issued by a
public agency. California American Water would sell the intangible property right to the
public agency in exchange for the proceeds of debt issued by the agency. California
American Water then collects the non-bypassable surcharge from its customers and remits
the proceeds to the public agency, which uses the proceeds to service the debt.
Q8. Can you briefly explain the traditional tax-exempt borrowing through the issuance of tax-
exempt cops by MPWMD?
A8. Yes, under this proposal, California American Water effectively sells an intangible right,
participation in a revenue stream, to a public agency in exchange for proceeds of COPs
issued by the public agency. California American Water then collects a surcharge from its
customer and remits the surcharge proceeds to the public agency, which uses the proceeds
to service the COPs.
Q9. Can you summarize the public agency financing proposals?
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A9. Yes, in both instances, California American Water sells an intangible right to a public
agency in exchange for the proceeds of a tax-exempt debt issued by the public agency. In
addition, in both instances, California American Water collects a surcharge from its
customers that it remits to the public agency and the public agency uses those proceeds to
service the debt or the COPs. As I understand them, the proposals exclude the portion of
the Project funded through the public agency "contribution" from rate base.
It is important to note that in explaining the public agency financing proposals, I use the
words "sell" and "contribution" in a non-technical sense. Because the public agency
financing proposals are vague, it is not clear whether California American Water is selling
an intangible right to a future revenue stream to the public agency or whether California
American Water is issuing debt secured by a future revenue stream to the public agency.
As I will explain, whether the IRS views the proceeds that California American Water
receives from the public agency as proceeds from the sale of an intangible asset or as
securing a debt of the public agency, will determine the federal income taxation of the
funds. My colleague Michael Barrett will explain that whether California American
Water sells the intangible asset to, or uses the asset to secure a debt of, the public agency
also has significant financial accounting consequences.
Q10. Can you explain the tax treatment of the funds received by California American Water
from the public agency?
A10. Yes, unless an exception applies, the general rule under Internal Revenue Code (the
"IRC") § 61(a) and the related regulations is that the proceeds California American Water
receives from the public agency would be included in California American Water's gross
income for tax purposes.
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Q11. Are there any exceptions to the general rule that would exclude the funds California
American Water receives from the public agency from California American Water's
taxable income?
Al 1. Yes, there are two exceptions to the general rule of IRC § 61(a). First, in certain limited
instances, the funds may be characterized as Contribution In Aid of Construction (a
"CIAC") to a water utility. Second, in other limited instances, the Internal Revenue
Service may treat the funds as loan proceeds, which are excluded from gross income and,
thereby, excluded from taxable income.
Q12. Can you explain the CIAC exception?
Al2. Yes, IRC § 118(c) excludes a CIAC to a water utility from the utility's taxable income if
the CIAC meets a series of detailed requirements provided in IRC § 118(c).
Q13. Would the funds received by California American Water from the public agency qualify
for the CIAC exception in IRC § 118?
A13. The funds received by California American Water from the public agency are probably
not CIAC under IRC § 118(c). In Private Letter Ruling ("PLR") 200747008 4 the IRS held
that funds received by a regulated utility from a public agency were not non-shareholder
contributions to capital under IRC § 118 because the public agency intended to have its
investment repaid, plus interest. The financing mechanism through which the utility in
PLR 200747008 received funds from a public agency was similar to the public agency
contributions proposed in this case.
PLR 200747008 stands for the proposition that whether a distribution of funds is a
contribution for purposes of IRC § 118 depends on the transferor's intent. In PLR
200747008, the IRS concluded that the public agency did not intend to contribute funds to
4 PLR 200747008 (Issued August 28, 2007).
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the utility because it intended to have its investment repaid and the utility enacted a
surcharge on its customers and used the proceeds of that surcharge to repay the public
agency's investment.
Q14. Would the IRS apply PLR 200747008 to the public agency "contributions" proposed in
this case?
A14. Not necessarily, it is important to understand that the law in this area is uncertain and that
PLR 200747008 only binds the IRS to provide a specific tax treatment to a specific
taxpayer based on a specific set of facts. PLR 200747008 provides insight into how the
IRS may view the public agency contributions proposed in this case but it does not require
the IRS to treat the public agency contributions proposed in this case in a certain manner.
Nevertheless, based on the guidance provided in PLR 200747008, I believe it is likely that
the IRS would not consider the funds California American Water receives from the public
agency to be a "contribution" for tax purposes because the public agency intends that
California American Water pay back the funds with interest.
Q15. What are the general tax and ratemaking consequences to California American Water if
the conclusion in PLR 200747008 applies?
A15. If the conclusion in PLR 200747008 applies to the proposed public agency
"contributions," the funds California American Water receives from the public agency
would not be a tax-exempt contribution for federal income tax purposes. Thus, California
American Water would include the funds received from the public agency in its gross
income, and, thereby, its taxable income, unless some other exclusion applies.
Q16. If the funds received by California American Water are not a non-taxable contribution
under IRC § 118, would the IRS treat the funds as non-taxable loan proceeds?
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A16. The answer to this question is uncertain. Revenue Procedure ("Rev. Proc.") 2002-49 5 and
Rev. Proc. 2005-626 created a "safe-harbor" for the treatment of certain legislatively
authorized transactions entered into by a utility in which legislation pelinits a utility to
recover certain specified costs through a surcharge based on consumption by its
customers. If a proposed public agency "contribution" falls under the safe-harbor, the IRS
may treat the funds received by California American Water as non-taxable loan proceeds.
That said, the safe-harbor is extremely narrow and the IRS will not issue rulings on
whether a taxpayer meets the safe-harbor's requirements. 7 Therefore, even if a proposed
public agency "contribution" appears to meet the safe-harbor's requirements, California
American Water cannot be certain that the IRS will not subject the funds it receives from
the public agency to federal income taxation.
Q17. Can you explain the safe-harbor provided by these revenue procedures?
A17. Yes. For purposes of brevity, I will confine my discussion to Rev. Proc. 2005-62. Rev.
Proc. 2005-62 applies to an investor owned public utility that, pursuant to specified cost
recovery legislation, receives an irrevocable financing order from a state agency that
determines the amount of certain specified costs the utility may recover through
qualifying securitization of an intangible property right created by the special legislation.
Rev. Proc. 2005-62 treats the issuance of bonds or COPs secured by the intangible
property right to collect a surcharge from customers as an obligation of the utility. In
other words, if the public agency contribution meets the requirements of Rev. Proc. 2005-
62, the IRS treats the funds received by California American Water from the public
agency as loan proceeds, which are not included in its taxable income.
5 Rev. Proc. 2002-49 (Issued July 22, 2002).
6 Rev. Proc. 2005-62 (Issued September 12, 2005).
7 Rev. Proc. 2009-3, § 3.01(3) (Issued January 5, 2009).
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Q18. Can you briefly explain the requirements a utility must meet to qualify for the safe-harbor
in Rev. Proc. 2005-62?
A18. Yes, first, the utility must be an investor-owned public utility subject to the regulation of a
state public utility commission. Second, a state legislature must enact specified cost
recovery legislation that permits the utility to recover certain costs. Rev. Proc. 2005-62
provides a list of detailed criteria that the legislation must meet. Third, the utility must
participate in a qualifying securitization, defined in Rev. Proc. 2005-62. It is important to
understand that if the legislation does not meet all of the criteria and/or the utility does not
participate in a qualifying securitization, the safe-harbor does not apply and the funds are
considered taxable income.
Q19. Does the proposed tax-exempt securitization alternative qualify for the safe-harbor under
Rev. Proc. 2005-62?
A19. Since the details of the proposed tax-exempt securitization alternative are not final, I
cannot opine on whether it meets the requirements of Rev. Proc. 2005-62. I can say that
the tax-exempt securitization alternative as outlined in Mr. Stoldt's memorandum 8 does
not appear to meet all the qualifications of Rev. Proc. 2005-62. For example, among other
things, Rev. Proc. 2005-62 requires that a financing entity that is wholly owned, directly
or indirectly, by the utility issue the debt.
Q20. Does the proposed "traditional" tax-exempt borrowing alternative qualify for the safe-
harbor under Rev. Proc. 2005-62?
A20. Since the details of the traditional tax-exempt borrowing alternative are not final, I cannot
opine on whether it meets the requirements of Rev. Proc. 2005-62. I can say that the
traditional tax-exempt borrowing alternative as outlined in Mr. Stoldt's memorandum 9
does not appear to meet all the qualifications of Rev. Proc. 2005-62. For example, among
8 Direct Testimony of David J. Stoldt, Exhibit WD-1, filed February 22, 2013.
Directl estimony of David J. Stoldt, Exhibit WD-1, filed February 22, 2013.
307164215.1
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 112, Packet Page 132
other things, Rev. Proc. 2005-62 requires that a financing entity that is wholly owned,
directly or indirectly, by the utility issue the debt. Furthermore, even though Rev. Proc.
2005-62 purports to apply to COPs in certain instances, I am not certain the IRS would
stand by that language.
Q21. Can you describe the general tax and ratemaking consequences if the public agency
"contributions" do not qualify for the Rev. Proc. 2005-62 Safe-Harbor?
A21. Yes, the funds received by California American Water would not be considered a tax-
exempt contribution for federal income tax purposes. Thus, the proceeds California
American Water receives from the financing entity are subject to federal and state income
taxes.
Q22. Is there any way to be certain that the funds received by California American Water will
not be subject to federal income tax?
A22. No, the IRS will not issue a private letter ruling in circumstances involving any investor
owned utility seeking cost recovery through (i) the creation of an intangible property right;
(ii) the transfer of that intangible property right; or (iii) the securitization of the intangible
property right. 10 Specifically, the IRS will not issue a ruling on whether the funds
received by the utility from the public agency should be included in the utility's gross
income, the taxable year the funds should be included in the utility's gross income (if
any), and the determination of the amount of income that should be included in the
utility's gross income (if any). Nor will the IRS issue a ruling on whether the payments to
the utility are a loan proceeds for federal tax purposes.
Q23. Based on your experience, would you recommend that the CPUC order California
American Water to implement one of the public agency financing proposals?
1° Rev. Proc. 2009-3, § 3.01(3) (Issued January 5, 2009).
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 113, Packet Page 133
A23. No. Based on the information available at this time, I have concerns about the viability of
the proposed public agency financing proposals because there is significant uncertainty in
this area of tax law and the potential consequences, federal and state income taxation of
the proceeds California American Water receives from the public agency "contributions,"
are too severe and would undermine the objectives of California American Water and the
Commission. Moreover, the IRS will not issue guidance on how it will tax the funds
received by California American Water from the public agency. I am particularly
concerned about the COP financing alternative because I believe that an attempt to meet
the safe-harbor would be disadvantageous as the safe-harbor is extremely narrow and the
costs and difficulty associated with structuring a transaction to fall within the safe-harbor
are significant, especially considering that the IRS will never issue a binding ruling that
the taxpayer complies with the safe-harbor.
Q24. Are there any other alternatives that would give more certainty to the public agency
contributions?
A24. Yes, actual CIACs in which a state and local government, developer or another party
provides funds without a repayment obligation, i.e., a CIAC that qualifies under IRC §
118(c), are common in the water utility industry. The tax law is clear that a CIAC
provided to a water utility taxable so long as the tax basis of the asset is reduced by the
amount of the contribution and certain other requirements are met. Thus, a government
could obtain funds through bonds securitized by increased property taxes or another
revenue source and contribute those funds to California American Water. So long as
California American Water is not obligated to repay the contribution and the other
requirements of IRC § 118(c) are met, the IRS would not view the contribution as either
the sale of a revenue stream or a debt. In addition, the IRS will provide additional
certainty in the form of a private letter ruling that the contribution is not subject to tax.
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V. CONCLUSION
Q25. How would you recommend the Commission and the interested parties resolve the tax
issues associated with the public agency financing proposals?
A25. The Commission and the parties should be aware that the tax consequences of the public
agency financing proposals may have a significant impact on customer's rates and should
account for that impact in their models. Because of the uncertainty surrounding the tax
treatment of the public agency public agency financing proposals and the costs and
difficulty associated with meeting the safe-harbor, I would recommend that the
Commission consider if other financing alternatives, such as a qualified IRC § 118(c)
CIAC, might be more appropriate.
Q26. Does this conclude your rebuttal testimony?
A26. Yes, it does.
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ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 116, Packet Page 136
N a m e : Michael J Reno
Executive Okector, Tax Services
NatiowallOx
Ernst S Young LLP
Mike is an Executive Director with the National Tax Department based in Washington DC. He serves as a Power and Utility Industry specialist. Mike has
more than 24 years experience and joined Ernst EYoung in 2012. He is focused on providing tax services to the energy industry and has
experience serving regulated electric and gas utilities including multinationals and foreign-owned companies. He has regularly assisted
clients in the areas of planning, supporting and explaining tax reporting positions and by performing tax return reviews. He experience
includes providing advice with respect to accounting for income taxes and performing tax provision reviews. In addition, he regularly
consults with companies regarding tax accounting and its impact on the rate setting process as well as compliance with the normalization
rules. His work with utility companies has also included consultation and representation with respect to IRS controversies;
drafting/reviewing Form 31I5s (Application for Change in Accounting Method), including meeting with IRS officials; performing deferred tax
studies; and consulting related to investment tax credits, Treasury grants and production tax credits for alternative energy projects. In
addition, Mike has also been involved in due diligence with respect to merger and acquisitions involving power, utility and alternative energy
companies.
Mike received a BS and Masters in Accounting from Kansas State University.
Michael J. Reno I Exe cutive Dire ctor I N a tiona l Ta x
ERNST &YOUNG
Ernst & Young LLP
1101 N e w York Ave nue , N W, Wa shington, DC 20005-4213, Unite d Sta te s of Am e rica
Office : +1 202 327 6815 Ce ll: 202 492 3125
J
Micha e l.Re no@e y.com
We bsite : www.e y.com
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 117, Packet Page 137
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF WILLIAM D. ROGERS
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
306893899.5
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street
Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 118, Packet Page 138
TABLE OF CONTENTS
Page
I. INTRODUCTION
1
II. CALIFORNIA AMERICAN WATER
3
III. MPWMD
4
IV. DRA
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 119, Packet Page 139
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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.
REBUTTAL TESTIMONY OF WILLIAM D. ROGERS
I. INTRODUCTION
Ql. Please state your name, business address and telephone number.
Al. My name is William D. Rogers, and I am employed by American Water Works Service
Company (the "Service Company"), a subsidiary of American Water Works Corporation
("AWW") as Vice President and Treasurer. My business address is 131 Woodcrest Road,
Cherry Hill, New Jersey 08034.
Q2. What are your responsibilities?
A2. The Treasury group is responsible for advising subsidiaries on capital structure, financial
liquidity, and alternatives for permanent financing, including tax exempt and taxable debt,
and then executing that capital formation on behalf of subsidiaries as directed. In
addition, the Treasury group provides for the financial liquidity of AWW through long
term fully committed bank revolving credit facilities and commercial paper borrowings
and then lends these funds as appropriate to AWW subsidiaries. Responsibilities outside
of financial liquidity and capital management include, but are not limited to, credit rating
agency relations, advising the board on capital investment and capital formation, advising
the board on dividend payout, financial oversight of all investments for qualified benefit
plans, placement of insurance in order to transfer risk, and enterprise risk management
activities.
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(Filed April 23, 2012)
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Q3. Briefly describe your educational background.
A3. I hold an MBA in accounting and finance from Duke University. I am also a
distinguished graduate of the U.S. Military Academy with a bachelor's degree in
engineering and economics. I hold a Chartered Financial Analyst from the CFA Institute
and I am a Certified Treasury Professional from the Association of Financial
Professionals.
Q4. Please describe your professional experience.
A4. Prior to joining AWW in 2010, I was the chief financial officer for NV Energy, an
investor-owned utility in Las Vegas serving 1.5 million electric and gas customers in
Nevada and until 2010 in California, with annual revenues of $3.3 billion. I previously
served as vice president of finance, risk and tax, as well as corporate treasurer.
Before joining NV Energy, I was a managing director of capital markets for both Merrill
Lynch and JPMorgan Chase in New York, providing debt and equity capital markets
advisory services and underwriting to electric, gas and water utilities and to various
segments of the energy industry.
Before beginning my finance career, I served on active duty as an engineer and officer in
82d Airborne and 2d Infantry Divisions of the United States Allny for six years, departing
with the rank of captain.
Q5. What is the purpose of your testimony?
A5. The purpose of my testimony is to discuss the current and future financing that is provided
to California American Water by the American Water Capital Corporation ("AWCC") and
why the California Public Utilities Commission ("Commission") needs to ensure that the
financing proposals made by the Monterey Peninsula Water Management District
306893899.5
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("MPWMD") and the Division of Ratepayer Advocates ("DRA") do not negatively affect
the financial position of California American Water.
II. CALIFORNIA AMERICAN WATER
Q6. Please explain the financing relationship between California American Water and
AWCC.
A6. AWCC provides cash management services and long term and short term debt financing
services to California American Water. AWCC is able to achieve higher credit ratings, a
lower cost of capital, and access to more sources of capital than its utility subsidiaries as a
result of the size of American Water and the diversity of the portfolio of utility
subsidiaries of American Water. Fixed income investors, commercial paper lenders and
commercial bank lenders can look to AWCC's broad portfolio of loans to wholly-owned
utility subsidiaries of American Water and with the diversification see strength. The
result is a rating of Baa2 by Moody's with a credit positive outlook and a rating of BBB+
by Standard and Poor's with a credit positive outlook. The strength of the access to
capital is demonstrated by AWCC's recent December 2012 debt issuance with a thirty
year maturity (2042) and a coupon of 4.30%. Further, AWCC is able to borrow in the
commercial paper markets as an A2/P2 (Standard and Poor's and Moody's ratings,
respectively) credit at costs of 0.45% in current markets. Finally, AWCC is able to access
contractually committed bank credit facilities with its current $1.0 billion revolving credit
facility maturing in October 2017. All of these borrowings and credit facilities are then
available to subsidiary utilities at the same rate at which AWCC borrows externally.
Q7. Please explain why the Commission must consider California American Water's financial
viability when it evaluates the impact of MPWMD and DRA's financing proposals.
A7. California American Water is a stand-alone water utility company operating in California,
• and California American Water must have the financial means to raise equity and debt (at
reasonable rates) to invest and maintain its utility infrastructure. As long as California
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American Water maintains a reasonable capital structure and earns a reasonable return on
equity, it will be able to attract debt investors at reasonable interest rates. As reviewed in
the prior question, AWCC provides a more efficient means for California American Water
to access the short-term and long-term debt capital markets and provides such capital at
cost to California American Water.
If California American Water and other regulated utilities do not maintain a reasonable
capital structure or do not earn a reasonable return, American Water's and AWCC's credit
quality will suffer. In addition, American Water may not be able to attract equity
investments, which could affect its ability and willingness to make equity investments in
California American Water.
III. MPWMD
Q8. Have you read the February 5, 2013 Proposal for Public Contribution of Funds?
A8. Yes.
Q9. Do you have any concerns regarding the public contribution proposals?
A9. MPWMD describes its public contribution proposals in relatively general terms.
However, the specifics of the financing, including the structure of the special purpose
entities, rating agency requirements, segregation of funds, credit rating impacts on
California American Water and AWW, fees and expenses to establish the structure, and
ongoing expenses to manage the structure are not available at this time. While American
Water would support California American Water in considering a public contribution, it is
important to ensure that the benefits to customers are significant enough to justify the
complexities of such a transaction. This is also addressed in the testimony of Dr. William
Chambers.
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First, this is a complex transaction relative to a direct borrowing by California American
Water from AWCC, which itself has well known borrowing rates and reasonable ready
access to the debt capital markets. The complexity of the transaction may require
significant fees and expenses in order to structure the transaction. These fees and
expenses would further increase the all in costs to California American Water customers.
Should the entity need to fund reserve accounts or escrow funds, this would further add to
the cost of the transaction. MPWMD should endeavor to minimize any escrow
requirements, for any amount of escrow will increase costs at the margin and the greater
the amount of escrow required relative to the principal outstanding, the greater the costs to
customers as a result of the negative carry.
Second, with respect to timing, there could be potential delays from a highly structured
transaction. Complex financial structures or structures that require significant, albeit
appropriate, approvals by public agencies by definition require more time and could delay
access to credit markets or delay the overall timing of the project.
Third, should the financing as proposed be capitalized onto the balance sheet or be
imputed onto the balance sheet of California American Water, then, on the margin, by the
very definition of debt, this would certainly have a negative impact on the credit metrics
of California American Water and AWCC, either in the view of credit rating agencies or
fixed income investors or both. In the case of securitization, the magnitude of the secured
debt would have a significant impact on a company the size of California American
Water. The secured debt would be first priority ahead of other debt and equity, making
other debt and equity more risky. Should debt other than the public financing proposals
currently and prospectively on California American Water's balance sheet be effectively
structurally subordinate to the payment of interest and principal on these public financing
proposals, then there would be less cash flow to service this debt. Therefore the credit
metrics (e.g., cash flow to interest and debt to cash flow) are weaker, making this debt and
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California American Water more risky. The impact on credit metrics would be based
upon the amount of the public financing proposals, but any debt that is placed in priority
of California American Water debt would weaken the credit metrics on the margin.
Fourth, in addition to the balance sheet and credit rating impacts, it is not clear whether
California American Water would need a credit rating to complete this financing.
Although MPWIVID states that no separate rating would be needed, it is possible that this
could be a requirement to get the financing completed. I encourage caution prior to
asking for a credit rating of California American Water. A separate credit rating could
affect the viability of the financing if California American Water has a credit rating below
AWCC or, given its size and historical credit metrics, a non investment credit rating.
Furthermore, if the Monterey customer funds had to be segregated and the first in line in a
water-fall system of accounts, this could further diminish the California American Water
credit quality.
Last, California American Water's and AWW's cash management operations are not
configured to segregate the funds of Monterey customers. Should this be a requirement,
along with the regular deposit of these funds into a trust account, there will be meaningful
systems technology investments and bank system interfaces that will need to be
established and tested. The segregation of customer funds is not an insignificant
operational requirement. Again, we are spreading high one time fixed costs over a
relatively small number of customers. Moreover, if California American Water were
required to segregate the funds in its cash management operations / remittance system and
then regularly deposit these funds in a trust account, then the cash is not available for all
operations and maintenance requirements of California American Water. Therefore, the
segregation of funds in a priority of water-fall accounts would diminish the cash available
for other needs of California American Water.
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Q10.
Is it possible that the public financing proposals could have a negative impact on non-
Monterey County District customers?
A10. Yes, this is not only possible but is likely. If the public financing proposals negatively
impact the credit metrics or the seniority of cash flow available to service other CAW
debt, then the cost of debt for all CAW customers would be impacted. As I reviewed
earlier and as Mr. Chambers has testified in more detail, there are significant credit rating
issues for consideration.
Q11. You mentioned that the public financing proposals could increase the riskiness of
California American Water. What steps would be necessary to bring California American
Water's risk profile back into balance?
Al 1. Should the public financing proposals increase the risk of California American Water,
then it would be appropriate to add to the equity capital strength of California American
Water and decrease its financial leverage. Without a stronger balance sheet to offset this
risk, it would be appropriate to seek a higher allowed return on equity as a result of the
increased risk.
Q12. Mr. Larkins states that an expected securitization would be rated AA or better, and that the
MPWMD certificate of deposit structure would be rated in the single A category. Would
this provide a clear benefit?
Al2. It is not clear that merely having a higher credit rating would result in a lower cost of
capital for customers. For instance, most "stranded asset financings" were priced to yield
the same as single A utility credit quality, despite having AAA ratings, when these
financing structures were in vogue earlier last decade. This is simply due to the complex
nature of the transactions. In much of the 2011 and 2012 capital markets, A rated credits
in the corporate market had a lower cost of capital than many stronger rated
municipalities. This was due to absolute level of yields and the nature of the tax exempt
markets as well as published research on the direction of credit quality of municipalities.
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In the context of the current market, AWCC with Baa2/BBB+ (outlook positive from both
agencies) can borrow at 3.0% for ten year funds and 4.25% for thirty year funds.
California American Water would enjoy this same low cost of funds when it, in turn,
borrows from AWCC. Therefore, the credit rating is but one factor in the cost of debt
capital. Market sentiment, investor access, credit quality and corporate name recognition,
and investor segmentation can be equally if not more important.
Q13. Is it possible that implementation of the public contribution proposals could delay the
financing process?
A13. As I discussed earlier, the drafting of documentation, state and local agency approval
process, and potential credit rating process for the public contribution proposals will take
time relative to the ability of CAW to borrow from AWCC and AWCC's ability to take
advantage of its shelf registration and ready access to the credit markets. CAW and
American Water are committed to working closely and efficiently with MPWMD in order
to complete documentation and access capital markets in a timely manner to reduce risk
delays in the financing process as a result of the complexities in their proposed financing
structures.
IV. DRA
Q14. In its testimony, DRA criticizes California American Water's treatment of State
Revolving Fund ("SRF") loans in its financial model. Are you aware of how others states
direct utilities to handle SRF-type loans?
A14. Several of American Water subsidiaries, including our New Jersey and Pennsylvania
subsidiaries, are able to access state revolving funds. These borrowings are capitalized on
our subsidiary balance sheets as debt and the subsidiary balances its capital structures with
equity contributions from American Water.
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Q15. If there were no equity offset for the SRF, could that affect California American Water's
current arrangement with AWCC?
A15. Certainly. Without an equity offset, the SRF borrowings will make CAW's credit metrics
more risky. If the increase in risk is material, AWCC would necessarily evaluate its
financing arrangement with CAW.
Q16. Does this conclude your direct testimony?
A16. Yes it does.
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF ERIC J. SABOLSICE
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
307163320.2
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 129, Packet Page 149
TABLE OF CONTENTS
Page
I. INTRODUCTION
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II. EXPERIENCE WITH DESALINATION 2
III. ESTIMATE MODIFICATIONS
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A. Power
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B. Labor Expense
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C. Chemicals
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D. Boron
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF ERIC J. SABOLSICE
I. INTRODUCTION
Ql. Please state your name and business address.
Al . My name is Eric J. Sabolsice, my business address is 511 Forest Lodge Road, Pacific
Grove, CA 93950, and my business telephone number is (831) 646-3291. I am the Direct
of Operations and General Manager for the Coastal Division of California-American
Water Company ("California American Water").
Q2. Did you previously provide information regarding your employment and qualifications?
A2, Yes. I included infoimation regarding my employment and qualifications in my direct
testimony submitted as part of this proceeding.
Q3. What is the purpose of your testimony and what issues will you be addressing in your
rebuttal testimony?
A3. The purpose of my rebuttal testimony is to respond to the Division of Ratepayer
Advocates ("DRA") report on California American Water's application for the Monterey
Peninsula Water Supply Project, A.12-04-019. Specifically, DRA's recommendations
regarding operation & maintenance ("O&M") costs.
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II. EXPERIENCE WITH DESALINATION
Q4. Does California American Water have any experience operating desalination facilities?
A4. Yes. California American Water has operated and maintained the Sand City Desalination
Plant since early 2010. The source of supply to the facility is naturally occurring brackish
water withdrawn through beach wells containing between 17,000 to 24,000 mg/L total
dissolved solids ("TDS"). Reverse osmosis ("RO") membranes are utilized to remove
dissolved salts and produce permeate that contains approximately 180 mg/L as TDS. The
RO is followed by ultra violet ("UV") disinfection to ensure proper disinfection. The
permeate is then rehardened using calcite contactors and chlorine is added for disinfection.
Finally, sodium hydroxide is added for pH adjustment to ensure the product water is
noncorrosive. The product water is blended 3/1 with water from the distribution s ' ystem,
metered and then pumped to California American Water customers.
Q5. Did California American Water utilize the Sand City Desalination Facility as a reference
when developing the cost model for the water supply project cost model?
A5. Yes. While the water supply project's desalination facilities will be different in some
respects (e.g. plant capacity and the naturally occurring levels of TDS in the raw water),
there are many similarities that provide reference points when estimating future O&M
costs. These similarities include subsurface intakes located along the beach, minimal
pretreatment systems due to higher quality raw water associated with subsurface intakes,
the use of reverse osmosis to remove salts and the use of an energy recovery system to
transfer energy from the waste stream to the feed water.
Q6. Are there other desalination projects currently in operation that you have used as a
reference when estimating power consumption?
A6. Yes. American Water operates and maintains the largest seawater desalination project
(27.5 MGD or 30,800 AFY) in the U.S. through a joint venture with Acciona Agua, S.A.
The facility is located in Apollo Beach, FL and is operated under contract to Tampa Bay
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Water. I was personally involved as the Project Director for the joint venture during
design, construction, and start up of the facility. The desalination plant processes
seawater withdrawn from the outfall of the Big Bend Power Station owned by TECO
Energy. The seawater water drawn from the power plant outfall is warmed by the power
plant steam condensers to above 100 degrees Fahrenheit. The warmed seawater reduces
the feed pressure required. The reduced feed pressure results in a power consumption rate
of approximately 3.0 kWh/cubic meter. Other projects of interest around the world
include the Fujairah I desalination plant expansion in Abu Dhabi rated at 36 MGD. The
facility utilizes a hybrid desalination process combining multi-stage flash distillation and
reverse osmosis. The projected power consumption is reported to be 3.7 kWh/cubic
meter.
1
Finally, the 18 MGD Ghalilah seawater reverse osmosis facility located in Ras al-
Khaimah, UAE is reported to claim an energy consumption target of 3.14 kWh/cubic
meter. 2 This lower consumption target is stated to have caused "ripples of surprise in the
industry."3
III. ESTIMATE MODIFICATIONS
A. Power
Q7. Do you agree with DRA regarding estimates of power consumption in Chapter 4, Section
C.1?
A7. No. DRA understates the expected levels of energy consumption for the facility by 50%
in some cases when estimating kilowatt-hours ("kWh") per year for the intake wells,
desalination facility, and conveyance/high service pumps. DRA proposes the annual
consumption rate for the 9.6 MGD facility be adjusted down to 26,500,000 kWh from
51,500,000 kWh. A similar reduction is suggested for the smaller facility as well. DRA's
estimate for the larger facility equates to 7,563 kWh/MG or 2.0 kWh per cubic meter of
water produced. When intake wells, desalination process, and conveyance are taken into
See GLOBAL WATER INTELLIGENCE, Feb. 2013, p. 27.
2 See id.
3
Id.
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account, the Sand City Desalination Facility produces water at approximately 3.3 kWh per
cubic meter. DRA's forecast for the water supply project is much lower than the actual
rate of consumption experienced at the Sand City Desalination Facility. In addition, the
forecast is far below any known seawater reverse osmosis facility in the world.
Q8. Would California American Water's facility, as proposed in its water supply project
application, operate at a similar power consumption rate as the Sand City Desalination
Plant?
A8. No. The water supply project will operate at a higher rate of consumption than the Sand
City Desalination Plant. While the process will be similar to Sand City, a key difference
will be higher raw water TDS (i.e. salinity) expected for the larger water supply project
facility. The goal of using slant wells as the form of subsurface intake will be to obtain a
raw water supply that is closer to that of seawater. The raw water TDS concentration is
expected to range between 28,000 to 33,000 mg/L. The projected salinity for the water
supply project is 20% to 30% higher than the raw water TDS concentration experienced at
the Sand City Desalination Plant. As salinity increases so does the osmotic pressure. For
reverse osmosis to occur the osmotic pressure must be overcome. Additional factors that
will affect the driving pressure required to produce peimeate are the type of membrane
system, system configuration, and feed water temperature.
Q9.
Do you agree with DRA's suggested correction to the power model regarding adjusting
for the density of seawater?
A9. Yes. Due to its mineral or salt content seawater will be denser than fresh and that
adjustment can be incorporated. With that correction, it remains somewhat vexing as to
how DRA estimated the rate of power consumption for the entire facility at 2.0 kWh per
cubic meter, which would be more in line with a facility treating source waters with a
much lower total dissolved solids or utilizing a process such as forward osmosis. While
forward osmosis as a technology is known to reduce the rate of energy consumption, it is
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new in the drinking water industry and far from proven. Furthermore, the use of an
osmotic agent to facilitate osmosis requires separation of the pure water from the agent.
These agents are not yet NSF/ANSI certified for contact with potable water by the
California Department of Health. In closing, I believe that DRA's use of such a low ratio
of power/production indicates an error in their calculations when considering results for
other projects around the world.
Q10. Do you agree with DRA's position regarding a reduction in labor expense of $20,000
annually?
A10. No. DRA's bases the adjustment on an escalation factor of 3.1% as opposed to that
contained in California American Water's application of 4%. The Energy Cost of Service
Branch Escalation Memorandum escalation factor does not take into account cost of living
factors specific to the Monterey Peninsula nor does it consider the skill set required to
operate and maintain a large desalination facility. While the suggested reduction is small,
it should be recognized that this facility will be one of the largest desalination facilities
operating on the west coast and will have its share of operational challenges. Sufficient
budget for personnel is important to ensure that the right talent is available to operate and
protect the asset.

B. Labor Expense
Q11. Do you agree with DRA's position regarding the use of de-chlorination chemicals and
subsequent reduction of the chemical budget?
Al 1 . No. De-chlorination may be required to avoid the formation of disinfection by-products
when what supplied from the desalination facility or groundwater replenishment facility is
injected into the aquifer. The escalation factor of 4% should be maintained as the market
for certain chemicals such as anti-scalents may be significantly affected by a large
desalination plant, such as the proposed project here in Monterey.

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C. Chemicals
Q12. Do you agree with DRA's position on removing the cost of second pass membrane
replacement?
Al2. No. DRA's has maintained that a second pass RO train is unnecessary and therefore no
second pass replacement is needed. California American Water requires inclusion of a
second pass RO train in the design to ensure that the facility is reliably able to meet the
California Department of Public Health's notification level of 1 mg/L for Boron.
D. Boron
Q13. What has been California American Water's experience with Boron at the Sand City
Desalination Plant?
A13. The Sand City Desalination Plant utilizes naturally occurring brackish source water that
contains a Boron concentration of 2 — 4 rng/L. The single stage reverse osmosis process
results in a peimeate Boron concentration of 0.9 to 1.1 mg/L. The pen -neate is blended
with distribution system water to reduce the final Boron level below the notification limit
of 1 mg/L.
Q14. What is your expectation for Boron concentrations for the proposed water supply project?
A14. I would expect that as TDS increase the level of Boron will increase as well. Using slant
wells, California American Water will draw upon the naturally occurring brackish water
beneath the ocean floor resulting in a feed water Boron concentration greater than 4 mg/L.
The expected permeate concentration would be greater than the 1 mg/L, which would
exceed the California Department of Health's limit. Furthermore, the second pass RO
train will ensure that the chloride levels in the product water are maintained low enough to
avoid customer complaints regarding taste or damage to plants/landscaping. It is
important to California American Water that any new facility should be designed to
reliably meet current and future primary and secondary public health standards. The value
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of the membrane replacement account should be maintained as proposed in California
American Water's application to include second pass replacement.
Q15. Is it possible for California American Water to blend the permeate with distribution water
to lower the Boron concentration to below 1 mg/L similar to the Sand City Desalination
Plant?
A15. The output of the Sand City Desalination Plant is approximately 220 gallons per minute as
permeate. This equates to 3% of the daily input to the Monterey distribution system,
allowing for an adequate blend. During the summer months, the proposed 6.4 MGD or
9.6 MGD desalination facility will provide the majority of daily input to the Monterey
distribution system and therefore cannot be blended to reduce the Boron concentration.

E. Repair and Replacement
Q16. Do you agree with DRA's reduction in the value of the repair and replacement ("R&R")
account for the facility?
A16. No. DRA simply adjusted the value of the R&R account based on its reduced estimate of
overall plant costs. The value of the R&R account is based on an expected replacement
schedule, which is significantly affected by the corrosive seawater environment, and
higher operating pressures experienced at a desalination facility. Proper maintenance of
equipment is critical both to protect the health and safety of employees working in the
area of the equipment as well as to ensure the desired production. The value of the R&R
account should be maintained as proposed in California American Water's application.
Q17. Does this complete your rebuttal testimony?
A17. Yes it does.

307163320.2
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 137, Packet Page 157
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF DAVID P. STEPHENSON
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
307124853.4
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 138, Packet Page 158
TABLE OF CONTENTS
Page
I. INTRODUCTION
1
II. PURPOSE OF TESTIMONY
1
III. DRA
2
A. Surcharge 2
2
B. Equity
7
C. Cost Cap 8
D. CAW Facilities 10
E. State Revolving Fund ("SRF") 12
F. Groundwater Recharge ("GWR") 15
IV. MPWMD 15
G. Surcharge 2 15
H. Net Present Value Analysis 16
I. Financing Alternatives and Additional Costs 19
J. Connection Fees 22
V. CITIZENS FOR PUBLIC WATER 22
K. Surcharge 2 22
L. Stranded Costs 25
VI. WATERPLUS 26
VII. SPI ANALYSIS 27
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF DAVID P. STEPHENSON
I. INTRODUCTION
Ql. Please state your name and business address.
Al. My name is David P. Stephenson and my business address is 4701 Beloit Drive,
Sacramento, CA 95838. I am Director of Rates for California-American Water Company
("California American Water").
Q2. Have your qualifications previously been provided in this proceeding?
A2. Yes.
PURPOSE OF TESTIMONY
Q3. What is the purpose of your testimony?
A3. The purpose of my testimony is to provide rebuttal to the positions espoused by a number
of intervenors in this proceeding and to further support the application filed by California
American Water. In my rebuttal testimony, I will address claims related to the regulatory
issues regarding Surcharge 2, cost caps, the California American Water-only facilities,
allowance for funds used during construction ("AFUDC"), groundwater recharge
("GWR"), financing alternatives and additional costs, net present value ("NPV") analysis,
connection fees "stranded" costs, and the SPI analysis. I will focus on the testimony of
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the Division of Ratepayer Advocates ("DRA"), Monterey Peninsula Water Management
District ("MPWMD"), Citizens for Public Water, and WaterPlus.'
III. DRA
A. Surcharge 2
Q4.

Please describe California American Water's request for the re-authorization of Surcharge
2 in this proceeding.
A4.

California American Water requests that the Commission re-authorize Surcharge 2 as
approved in D.06-12-040, with minor modifications. Please see pages 17 through 21 of
my direct testimony in this proceeding for further details.
Q5. Do you agree with DRA's assessment of the risks that California American Water
shareholders should bear for a project?
A5. I agree that shareholders do bear all the risk of proving that all expenditures are prudent.
If expenditures are deemed imprudent — then that deemed imprudent cost would not be
recovered.
Q6. Do you agree with DRA's description of the Commission's practices regarding abandoned
projects?
A6. As DRA notes, in certain instances, shareholders must bear the cost for cancelled projects.
This often for projects for which the utility had full control and not projects where the
utility acted under a mandate, as is the situation in this case. In other instances, the
Commission has allowed a utility to recover the costs of a cancelled project from
customers. This has happened on occasion for California American Water. This is a fact-
specific determination, however, and the Commission considers a variety of factors in
This does not mean that if other parties provided testimony that I agree with that testimony, especially in the case
where that testimony is at odds with California American Water's request in this case. Given the large number of
witnesses that provided testimony and the relatively short time for rebuttal, I focused my testimony on the key
regulatory points.
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making its determination. Moreover, just because California American Water has been
able to recover the cost of cancelled projects in the past does not mean that it will always
be able to do so in the future. Thus, DRA's statement that customers may "unfairly" bear
"the risk of project abandonment" is not accurate.
Q7.
Do you agree with DRA that California American Water may be able to profit on the sale
of the asset?
A7. No. California American Water carefully developed its proposal and worded its
application and testimony to avoid such a result for this project. Under California
American Water's proposed structure, the book value will be reduced in the amount of the
Surcharge 2 contribution, which means that the value at the time of sale will also be
reduced. To put it another way, if sold, the amount contributed would not be part of the
basis for the sale price — it will have been removed from the equation.
Q8. Do you agree with DRA that the use of customer funds to build a new project violates the
pact between California American Water and its customers?
A8. No. DRA claims that California American Water violated this pact because California
American Water is not taking on the full capital risk during the construction of the
MPWSP. Contributions, connection fees and facilities fees, however, are all forms of
customer contributions that are used to offset plant costs. While these are usually applied
when a new customer seeks a connection in the system, they still serve exactly the same
purpose as Surcharge 2. The commonality between the various methods is that they all
are for ensuring service to the customer and that customers pay their fair share. The same
principle applies to the MPWSP.
Q9. Do you agree with DRA that as a matter of general utility regulation policy, utility
projects are first funded by shareholders and then rewarded with a return after the project
is found to be used and useful?
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A9.
No, I do not agree that this is always the case. Again, connection fees can be assessed,
facility fees can be assessed and many items can be contributed. Therefore, in these cases,
the funding comes from the customers, not the utility.
Q10. Do you agree with DRA that the Commission must ensure that capital supplied by
ratepayers via Surcharge 2 is established as a public contribution and is permanently
excluded from California American Water rate base?
A10. What DRA has proposed is exactly what California American Water believes its proposal
accomplishes, as noted above.
Q11. Is DRA correct that California American Water will be "keeping" 100% of any costs
savings that result and will not place the savings in the balancing account?
Al 1. No. The intent of the balancing account is to capture all revenue requirement
differentials. This includes cost savings resulting from actual incurred benefits and
efficiencies.
Q12. Do you agree with DRA that California American Water's proposed timing for
Surcharges 1 and 2 would result in an unnecessary overlap, which would, in turn,
undermines the goal of mitigating rate shock?
Al2. No. While there is an increase out of the box of 30% under California American Water's
proposal, DRA's modified proposal would result in more dramatic rate fluctuations. At
the current rate of recovery of Surcharge 1 and other costs that may be requested and
authorized for recovery via Surcharge 1, 2 it is possible that it will not be fully recovered
until late in 2015, or possibly later. If DRA's proposal were adopted, then the recovery
period for Surcharge 2 would be shortened and the surcharge would not be able to
generate the proposed level of customer contributions. The first objective in setting the
2
For example, on December 4, 2012, California American Water entered into a settlement agreement with the
County of Monterey and the Monterey County Water Resources Agency regarding the Regional Desalination Project.
California American Water will be requesting recovery of costs related to this.
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timing and percentage of Surcharge 1 should be to recover the level of contributions
deemed appropriate. It should not be governed by an artificial decree that stifles
necessary beneficial contributions.
Additionally, under DRA's proposed schedule the Surcharge 2 collection in year 3 of
$46.9 million is far above a 60% level. This means that there is an inconsistency in the
DRA proposal and either it cannot recover the amount as requested by California
American Water, or the annual percentage for Surcharge 2 will be greater than 60% and
result in a rate decrease at the time the project starts to provide water to customers.
Q13. Do you agree with DRA that Surcharge 2 reduces the overall cost of the project and
avoids the rate shock that would result if customers were presented with a sudden 68%
increase in the Monterey District revenue requirement?
A13. Yes. This is exactly the principle requested in the application by California American
Water, and is demonstrated in the working model.
Q14. Do you agree with DRA that changes are necessary so that California American Water
and its customers are sharing in the risk of capital in the project?
A14. I do not agree that customers are sharing in the risk. That could only occur if there is no
review of the costs and the Commission authorized California American Water to recover
imprudent costs, or recover costs on the cessation of the project without a prudency
review. As proposed by California American Water, costs still need to be reviewed for
prudency and customer contributions will not go to fund imprudent costs.
Q15. Do you agree with DRA that Surcharge 2 funds should be held in a separate memorandum
account awaiting a reasonableness review of project expenses and that there should be a
second memorandum account, where funds collected from Surcharge 2 should be tracked?
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A15.
No. DRA's proposal to for multiple memorandum accounts and advice letter process is
convoluted and unclear. It is unnecessary because it adds complexity without providing
additional benefit to customers. As detailed in the California American Water financing
proposal, California American has proposed that costs be held in the balancing account
until the MPWSP is operational, at which point it will file an advice letter seeking
approval of the rate change. DRA and others will have the opportunity to review the costs
and the accounting of the Surcharge 2 at that time.
Q16. Do you agree with DRA that it is reasonable for ratepayers to earn a fair rate of return for
the use of Surcharge 2 funds?
A16. Yes, California American Water agrees that a reasonable return is appropriate, which is
why California American Water proposed that the balancing account accrue interest at the
actual costs of funds borrowed to fund the project. However, it is also logical that both
costs and collections earn interest at the same rate. DRA's proposal is not balanced and
makes no economic sense.
In my Direct Testimony I stated, "The memo account will draw interest at the same rate as
would the costs incurred for the project." For example, if the project was being funded by
short-term borrowings at a commercial paper rate of say 0.25%, then all surcharge
collections as well as all incurred costs would be subject to an interest component
calculated based on the 0.25%. California American Water's proposal in the Application
remains our recommendation today: that the interest charges and accruals would use the
same exact rate and that rate would be based on the interest rate of the instrument that
would be used during that applicable accrual period that is used to finance the project
costs.
For the Surcharge 2 Memorandum Account, DRA recommends that the account accrue
interest at California American Water's cost of equity (9.99%). This would apply to the
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total un-appropriated balance. For the MPWSP Construction Memorandum Account
DRA states that only the amount over the balance in the Surcharge 2 Memorandum
Account should draw interest at the actual cost of borrowed debt. The remainder would
not draw any interest.
Under DRA's proposal, California American Water would earn its actual short-term rate
on the costs it incurs in excess of the surcharge balance, while it would be paying 9.99%
interest to customers on the entire Surcharge 2 Memorandum Account. Why would
California American Water even consider customer funding if it had to pay more interest
on those collections than it would cost to borrow from a bank? The concept of AFUDC
and equitable sharing is completely violated by the DRA proposal. This adds significant
risk to the project over and above that which is already in play for California American
Water. I know of no Commission decision or other authorization that has ever used this
approach.
Q17. Does Surcharge 2 result in customers becoming implicit investors in the water supply
solution?
A17. No. They are contributors to the project just as developers are when they pay connection
or other fees. This is a contribution of funds, not an ownership vesting.
B. Equity
Q18. In at least one scenario presented by DRA, there is no equity proposed to be issued to
cover the cost of the facilities. What is your view on such a proposal from a regulatory
point of view?
A18. According to many of the California American Water rebuttal witnesses it has been shown
that it is important for the Company to maintain its current capital structure or increase its
return to remain in a neutral position to that which exists today, or all financing costs
would increase. In the case of no equity, this would significantly compromise the
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viability of the utility without a significant rebalancing or increase in equity return that
would affect all customers of California American Water. If the Commission chose not to
rebalance the capital structure or increase the cost of equity, it would harm the viability of
California American Water which is in direct conflict with the Commission's own Water
Action Plan, which states:
If utilities are not allowed to charge adequate rates to recover the
costs of doing business, they will not be able to invest adequate
amounts in maintenance and upgrading infrastructure. The result is
low quality service. The Commission will carefully review the
rates it sets to allow utilities to charge rates which will enable them
a fair rate of return on capital and sufficient investment in
infrastructure, while keeping rates reasonable for ratepayers. 3
C. Cost Cap
Q19. Do you agree with the significantly lower cost caps recommended by DRA?
A19. I do not. Mr. Svindland will address all the cost recommendations made by DRA and
how they affect the caps. I will only address my understanding of the Commission goal in
assigning cost caps and how the DRA recommendation is contrary to good public policy.
As I have learned through my experiences at the Commission, cost caps have been
employed in many industry cases to ensure that a more speculative project maintains its
economic viability through completion. A cap will limit the total dollars that are deemed
necessary to design and construct a particular project. I believe that cost caps are
particularly necessary in certain types of situations. The project here before us is a
number of years off until construction and there are many permits and other matters that
must be dealt with to come to the completion. So it is natural that some sort of cost cap is
3 2005 Water Action Plan page 21
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necessary. However, with a project of this magnitude, a cost cap that is set too low in the
initial stages could result in having to come back to the Commission numerous times to
get the cap altered. If a hard cap is set and the costs must exceed that cap to get to
completion, then I believe that it will be difficult to get financing for the project. The
project cap has to be set realistically and set at a level that allows for contingencies.
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It is apparent that DRA does not subscribe to this premise. DRA in this proceeding has
proposed not only a cost cap that is too low, but also a hard (or absolute) cap above which
no costs could be recovered. The Commission is required to provide the utility the ability
to earn a reasonable return on prudently incurred costs. This requirement cannot be met
under the DRA cap proposal — it is impossible if the hard cap is exceeded. What DRA is
doing is making a determination that there can be no reasonable or prudent costs over the
hard cap. That is impossible to know. Material prices could skyrocket, subsurface
construction cost issues could arise, permitting issues, totally out of the control of the
utility, could surface. Moreover, DRA in its assessment of project costs acknowledges
that there are some that are highly speculative. If that truly is the case, then an absolute
cap makes little sense to be proposed. Prudent and reasonable costs should all be
recovered as incurred on any project.
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There is no way for any person to determine an absolute not to exceed amount. Hard caps
may cause prudent costs not to be recovered. While a cap or soft cap may be appropriate
at a level that provides investors some sense that funds will be recovered at a reasonable
return, DRA's proposal could lead to the halting of the project because of risk and lack of
funding.
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Finally, cost caps are normally used to ensure that the project selected remains reasonable.
This assumes choices. In this case, a project has to be built or economic ruin may be
realized on the Monterey Peninsula. There is no choice but to build a project. What the
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Commission should be doing is ensuring prudent expenditures and not creating artificial
caps that might kill the project. California American Water should not be placed in a
position where it might not recover prudent costs for a project that is mandated, necessary
and the choice of most in the community. Hard caps are not needed and caps set at
reasonable levels are all that is necessary.
D. CAW Facilities
Q20. Do you agree with DRA that the last adopted cost cap for the CAW Facilities should not
be used in this case?
A20. No. Mr. Svindland will support why the $106.875 million is a valid estimate. We
supported the cap in A.04-09-019 and have again provided more than sufficient evidence
to support that number.
Q21. Do you agree with DRA that the Commission's prior approval of the Settlement
Agreement is not precedential?
A21. I agree that any settlement is not precedential. However, D.10-12-016 fully supported its
position to adopt the settlement. The decision can and should provide guidance since the
CAW Facilities are the same as previously proposed. There are no significant changes to
the cost estimates or the project, in my opinion, that would warrant changes in the cap. If
anything, the cost may be higher as the result of time passing by.
The Settlement Agreement in A.04-09-019 was approved by the Commission in D.10-12-
016 and was approved to facilitate implementation of the Regional Desalination Project
("RDP"), and thus, help solve the water supply constraints on the Monterey Peninsula.
The CAW Facilities were part of that approval. The purpose of the MPWSP is the same.
The CAW Facilities are the same. The only difference is who will own and operate the
desalination facilities and where they are located.
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Q22. Do you believe that the slight modifications made to the project cost should have a
bearing on the authorized cap?
A22. No. A change in the estimate is a natural occurrence as time passes. I do not see any
regulatory issue in regards to using the same cap as previous even though costs may have
changed slightly.
Q23. Since California American will now own and operate the plant, should that change the
treatment of the CAW Facilities?
A23. No. The semi-annual advice letter process was in place to ensure timely recovery of costs.
The adopted procedure was in place to allow CAW to recover its costs on a slightly after
the fact timeframe allowing some cash flow recognition. In this case, the cash flow needs
are greater as California American Water is constructing the desalination facility on its
own. This generates an even greater cash flow need for California American Water than
that in the RDP agreement. There is nothing in this proceeding that would justify a
different treatment for the CAW Facilities.
Q24. Do you believe that D.12-07-008 provide any justification for DRA to slash the cap of the
project?
A24. No. While I agree that the project can and maybe should be reassessed in this proceeding,
I do not believe that it provides any further guidance except to say no further recovery of
cost until a decision in this application.
Q25. Do you agree with DRA that all project costs, including those of the CAW facilities,
should all be considered as a single project and all recorded simultaneously?
A25. No. To fold the CAW facilities into the cost of service model and recover only after the
total plant is in service makes no sense. The CAW Facilities are comprised of mains,
tanks, wells, booster stations and PRV. These are all normal utility plant. We should be
seeking immediate rate consideration for these facilities — but to allow DRA some time to
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review, California American made the current process where costs go into rate base after
that fact. It makes no sense for DWA to not be processing the request.
Q26. Is California American Water stating that that Commission should not examine the costs
for the CAW only facilities?
A26. No.
Q27. Did DRA adequately justify the proposed changes to the recovery process?
A27. No. In fact, DRA does not provide any justification for eliminating the prior approved
process except to say this is all one project and should be considered together. As noted
above, this combined treatment does not provide for cash flow and does not comport with
the usual treatment of water utility investments, which is to allow all costs in CWIP as
part of rate base. The DRA proposal is a significant burden on an investment intensive
utility.
E State Revolving Fund ("SRF")
Q28. Do you agree with DRA that the Commission must explicitly require in its final decision
that any SRF monies used to finance the MPWSP be accounted for in accordance with the
requirements prescribed for the use of these public funds in D.05-01-048?
A28. No. Not in all aspects. I agree that it should be treated the same for ratemaking purposes,
but I do not agree that the Commission can require us to handle the funds differently than
required by GAAP.
Q29. Do you agree with DRA that the Commission should treat SRF loans as a contribution to
the project financing and exclude such funds from rate base?
A29. Yes, this is the normal ratemaking treatment. However, the Commission cannot dictate
how we handle the loans from a financial perspective. In his testimony on behalf of
California American Water, Michael Barrett of Ernst & Young provides the detail on how
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these loans have to be handled for book purposes. Additionally, Dr. William Chambers
discusses how the markets account for this debt in his rebuttal testimony on behalf of
California American Water.
Q30. Do you agree with DRA that allowing California American Water to account for the SRF
as debt on the balance sheet will allow California American Water to take a higher equity
position in the project than envisioned in Decision 12-07-009, which authorized the
establishment of cost of capital for the period from January 1, 2012 through December 31,
2014?
A30. No. While the SRF loan is a dedicated loan to pay off a certain portion of the plant and it
therefore cannot be in rate base, the loan is still a loan. If customers default, we have to
pay the interest and principle due. California American Water has no alternative but to
account for the loan as debt, reflect it on the balance sheet as such, and then re-balance the
debt/equity ratio to the appropriate structure the Company has established. As
recommended by the Commission in D.09-05-019, California American Water has
increased its equity ratio (from a 2008 level of 42%) to reduce leverage, provide a more
balanced structure, and provide the lowest cost financing to customers. To maintain this
lowest cost capital financing plan, it is imperative that the capital structure remains the
same as last authorized, which was comprised of 47% debt and 53% equity. California
American Water's financing proposal will ensure that this occurs, because it includes a
proposal to finance the debt portion with SRF Debt and properly reflect that debt on the
books of the Company as debt, which Mr. Barrett notes is an accounting requirement.
Q31. What would happen if California American Water did not balance the SRF debt with
equity for book and ratemaking purposes?
A31. Based on the testimony of Dr. Chambers, the markets would view this negatively and then
require a higher interest rate on borrowings and a higher return on equity. The real
problem becomes that if you allow the SRF to remain completely out of consideration for
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the capital structure and the markets require higher returns on debt and equity that in turn
affects all of the California American Water properties — not just Monterey. The SRF
debt is issued for a Monterey project and all costs that occur as a result thereof should be
reflected in Monterey, not other California American Water properties.
Q32. Do you agree with DRA that the Cost of Capital application determines the appropriate
level of debt-to-equity and rate of return for a water utility that is at a sufficient figure "to
permit the company to raise enough capital to provide reliable service at a reasonable
rate"?
A32. Yes, I do, and that is exactly what occurs in every Cost of Capital application. This is
exactly why California American Water has proposed in this application to finance 53%
of the net project cost 4 with equity. California American Water has determined that with
all things considered a 53% equity capital structure is the most cost efficient.
Q33. Do you agree with DRA that California American Water is inappropriately applying SRF
loans as a substitute for long-term debt, even though the lower cost of these funds has not
been incorporated into the calculation of California American Water's weighted cost of
capital?
A33. No, I do not. Since a financing will be made with entire amount requested applicable to
this project, California American Water proposed that the weighted average cost of capital
to be applied to this project should be exactly the same as the remainder of properties in
California, except to substitute for the historic weighted average cost of debt, the average
cost of debt of the issuance (s) necessary for this project. This proposal will maintain
financial integrity as well and provide the lowest cost financing for the Monterey
customers. California American Water is applying the entirety of the SRF loans to the
MPWSP, not the higher cost of other embedded debt in the California American Water
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portfolio, and then offsetting that debt with equity at the same ratio as the remainder debt
and equity. So the SRF debt is accounted for appropriately — there is no "windfall."
Q34. Does the Commission account for all SRF loans in exactly the same manner for book
purposes?
A34. I do not believe that there is consistent treatment of SRF loans and how they are
represented before the Commission. Please see Resolution W-4678, attached hereto as
. Attachment 1, wherein it clearly shows that the Commission authorized North Gualala
Water Company to show the SRF loans as part of the capital structure.
F. Groundwater Recharge ("GWR")
Q35. Do you agree with the DRA recommendation that the Commission approve a 9.6 MGD
desalination plant because, as recommended below, California American Water could
subsequently obtain Commission approval via the Advice Letter process to down size the
plant if the GWR Project is viable?
A35. Yes, I do.
IV. MPWMD
G. Surcharge 2
Q36. Do you agree with Mr. Larkins that there are tools that can benefit customers by reducing
or replacing Surcharge 2?
A36. I believe that it all depends on what you want to consider in the analysis and how you do
that analysis. As I will explain below, I still vehemently disagree with those that believe a
Net Present Value analysis is a sole indicator or benefits. I do agree with Mr. Larkins that
you need to consider more than one approach and a possible approach is to simply look at
periods of time. However, as I discuss above, Surcharge 2 is a reasonable charge against
present customers since they have significantly benefitted by having deadline after
deadline extended for California American Water to comply with SRWCB Order W 95-
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10. Without all the extensions, clearly current customers would have had a much-reduced
supply, which in turn would have caused severe economic hardships. Therefore, I do not
believe it is fair for Mr. Larkins to say that some public financings are cheaper than a
contribution from customers with no interest cost — and from customers who need to pay
their pay share. I do not believe that there is any lower cost financing available to
California American Water in the magnitude necessary than Surcharge 2.
H. Net Present Value Analysis
Q37. Do you agree with Mr. Larkins that in the use of a NPV analysis that you need to look not
only at the total revenue requirement over time, and the NPV of that revenue requirement,
but also the annual burden on ratepayers, which is why they have added to their modeling
output a summary of rate payer impact over five and ten year horizons.?
A37. This is just as I have been saying, that the NPV analysis is only one analytical tool and
that there are many other tools and analyses that also should be considered. The
periodical and annual revenue requirements are very good tools to use and should be
given just as much, if not more, weight as any NPV analysis. Again, in my opinion any
NPV analysis that does not consider all elements of targeted group then lacks important
considerations. A project specific NPV analysis is only truly applicable to the
constructing entity. Every entity, group or individual has a different NPV factor and in
my view, a general factor is not appropriate to use when the analysis is for general
purpose that include how this affects customers.
Q38. Do you agree with Mr. Stoldt that economic comparisons of projects are most commonly
made on the basis of net benefits and that net benefits are determined by estimating
discounted benefits and costs over the study period, and then subtracting the discounted
costs from the discounted benefits to obtain discounted net benefits?
A38. Yes, I do, and that is exactly how the model is laid out. It determines an NPV for the
specific project as a matter of the projects impact on the Company. The NPV analysis in
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the model is not a determinate of the effects against customers, all of whom have their
own unique considerations that lead to different discount factors.
Q39. Do you agree with Mr. Stoldt that the Commission should require alternative financing
approaches to be evaluated utilizing NPV evaluation, not simply a single "test year"
revenue requirement?
A39. I agree, but with certain qualifications. While a presentation of the NPV analysis is one of
many tools that can be used, it should not be the main focus of the determination. To do
this type of analysis and comparison it has to be an all in cost consideration, not just costs
that may be incurred by the project. So if MPWMD pays for or covers a portion of its
costs out of reserves, that payment should be incorporated back into the analysis from the
point in time that revenue stream was acquired, based on a FIFO methodology.
To my understanding, there is also no commission requirement to use any single
evaluating method to make a determination. The total concept, including complexity,
achievability, timing and other factors has to be considered. These less fungible items
may actually be more important and affect the evaluation process greater than any NPV
analysis.
Q40. Do you agree with Mr. Stoldt that the 12.1% default value contained in California
American Water's January 3, 2013 financial model is not the appropriate discount rate for
NPV?
A40. No. The 12.1% is what the Commission has historically used. It is grossed up for taxes
weighted average cost of capital.
Q41. Do you agree that according to the California Department of Water Resources Guidebook
"The discount rate is used to adjust dollars received or spent at different times to dollars of
a common value, usually present day dollars ("present worth" or "present value")?
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A41. While a discount rate is used to adjust dollars received or spent at different times to a
common value, I believe that is only applicable to a specific individual, group, or entity.
Using a common discount rate as for an analysis of everyone's perceived impact is not
appropriate.
In regards to the correct NPV rate, if we are analyzing the project against other
opportunities for California American Water, then it is entirely appropriate to use the rate
of 12.1%, a rate that is the pre-tax cost of capital. The Commission has continually
determined that the NPV to be used in proceedings at the Commission is the tax grossed
up weighted average cost of capital for the utility. If we are talking opportunity cost for
someone else — like customers — maybe it is 1%. A discount rate is the major driver in
any NPV deteunination and unless you specify who the discount rate is applicable to for
their opportunity cost there is no way to specify an appropriate rate. Each and every
entity, individual, or group may have a unique discount rate that they believe needs to be
used to determine which opportunity cost is superior.
Q42. Do you agree with Mr. Stoldt that if the Commission uses NPV analysis as an additional
evaluative tool, a lower discount rate in the 4% to 6% range should be used?
A42. No, as I discussed above, the Commission has to determine who the subject of the
discount rate is. If it is the utility then the pre-tax cost weighted cost of capital should
apply. If it is the customer, then a multitude of discount rates may be applicable.
Q43. Do you agree with Mr. Stoldt that the use of NPV is widely used in economic evaluation
of capital projects to determine lowest cost impacts and that my statement in my
Supplemental testimony that "discounting a stream of revenues has extremely limited
value and really only provides a current value of future cash flows" is incorrect?
A43. No, my statement is not incorrect. In this case, since we have no idea to whom the
discount is being applied toward we really do not know whether there is value or not. If it
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is the overall net cost/benefit of the project to California American Water, then the pre-tax
costs of capital should be used. If we are discounting the net operating costs, then the
after tax rate of return should be used. The facts have to be determined based on the
affected party, not a universal group.
Q44. Do you agree with Mr. Stoldt that California American Water has calculated that its
weighted average cost of capital for the Monterey Peninsula Water Supply Project is less
than 4.0%?
A44. I agree that we calculated a projected all-in cost of financing the entire project at less than
4%, but that applies to all financing of the project, including equity, SRF debt, and zero
cost customer contributions. This is in no way the opportunity cost for California
American Water. In the model we used the rate that Commission has historically used in
any NPV analysis, which is the pre-tax weighted average cost of capital or 12.1%.
I. Financing Alternatives and Additional Costs
Q45. How will the Commission view alternative financing proposals and additional costs that
might need to be considered?
A45. In my opinion, and just like most proposed financings, I believe the Commission will take
an "all-in" approach to the cost review. In my experience the Commission never looks
only at a proposed interest rate, but they also look at all the brokerage fees, Commission
fees, placement fees, attorney fees and any and all other anticipated costs. In General
Order 24-C, the Commission states that as the part of any bond financing what is required
is a description of the bonds or other evidences of indebtedness, issued during the period
detailed above, under the authority of the Commission, including: I) the principal amount
of the issuance; 2) the commissions paid; and 3) the total proceeds received. Costs of a
loan are usually established as debt expense is used to offset the loan proceeds and
increase the effective interest rate.
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Q46. To the extent that the public financing proposals from MPWMD result in increased costs
for California American Water, do any of the current proposals provide a method for
recovery?
A46. No. Since these costs are not known and could be significant, not only at the time of
issuance, but to manage the process and track through various entities, California
American Water requests that if the Commission authorizes a portion of the costs of the
MPWSP facilities to be funded through an alternative financing such as proposed by
MPWMD, then a balancing account would need to be authorized to ensure that all the
costs related thereto are captured and recovered appropriately form the customers in
Monterey and no harm is placed upon the remainder of the customers in California
American Water.
Q47. Based on your experience, do you believe that the Commission will have a great tolerance
for uncertainty in the financing of the project?
A47. I really can't speak for how the Commission will consider uncertainty in any specific
application, but it has been my experience that the Commission has in the past been
inclined to agree to proposals that may cost slightly more if that proposal is more certain.
The problem with speculation is that not only do you speculate on the components of the
particular request, you also have to speculate on how the market conditions will change
and if the period of speculation will cause other factors to change and negatively impact
the proposal. In D.10-12-016 the Commission noted "However, we cannot delegate our
duty to balance the need for additional water and the impact on ratepayers, pursuant to
Pub. Util. Code § 701 and the California Constitution, Article 12." I think this speaks
volumes in this situation and infers that the Commission needs to look at all aspects of the
proposals and determine if the speculation will cause more harm than good — especially if
the harm is any further delay in the project.
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Q48. What is the normal process the Commission adheres to in the review and approval of
financings and does the process involve speculation?
A48. Rule 3.5 of the Commission Rules of Practice and Procedure establish the process and
requirements necessary to receive permission for a private utility to secure increases in
capital. Generally, to receive authorization to acquire new debt and/or equity, a utility
must file and get approval of an application that sates the general purpose of the capital,
what type of capital is to be issued — including all the terms, rate of interest, and whether
and how to be secured; the amount and description of the indebtedness which applicant
desires to assume, a description of the obligation and copies of any securities to be
assumed. The Commission does a very thorough review of the application to make sure
that the assumption of the capital does not place the viability of the entity in jeopardy and
to make sure that the terms and conditions are reasonable. To ensure success in the
application the applicant needs to know all possible facts about the transaction. Financing
approvals can take up to twelve months, or longer. This process is in place to assure the
viability of a utility. Speculation is not highly regarded in this process and there are
requirements for the facts. Speculation could lead to delays in the approval or outright
rejection of the application.
Q49. Do you believe the Commission would consider any public contribution as a contribution
in aid construction?
A49. No, I do not believe that it would be a true contribution in aid of construction. For
ratemaking, it might be excluded from rate base, but it would not offset the plant as a
contribution as this is much more akin to a loan that has to be repaid. Basically, the plant
would simply not be reflected for ratemaking in the revenue requirement and likewise
there would be no recorded contribution.
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J. Connection Fees
Q50. Do you agree with Mr. Stoldt that the proposed connection fee should not be set at the
same level as the current MPWMD connection fee and that the Commission should direct
California American Water and MPWMD to coordinate on the analysis and setting of a
connection fee for new connections?
A50. I agree that the Commission has the final say on setting the fee, but I disagree with Mr.
Stoldt that the appropriate fee should not be $24,000 per AF of allocation. The MPWMD
Fee is already established at approximately $24,000 per AF and it appears that the
community has accepted that fee. The MPWMD Fee is for new water supplies, which is
similar to the purpose of the MPWSP fee. Moreover, there are water rights presently sold
in Monterey for over ten times this amount, it is my opinion that a fee set at $24,000 per
AF of rights purchased is reasonable.
V. CITIZENS FOR PUBLIC WATER
K. Surcharge 2
Q51. Do you agree with Mr. Riley's characterization of Surcharge 2?
A51. Mr. Riley has made a number of statements and comments about to Surcharge 2 that are
misplaced, possibly due to a lack of understanding of our proposal. Mr. Riley claims that
he objects to the proposed $99 million surcharge because the surcharge includes a
reversed risk-reward relationship, reduces incentives for prudence, avoids competition,
and creates inter-temporal inequity. To support these points Mr. Riley suggests that
because the surcharge is collected concurrently with costs incurred there will be no
prudency of the costs incurred and that there is no incentive to reduce or eliminate costs.
This is untrue.
Q52. Please explain why you disagree with the idea that a reverse risk-reward relationship
exists in regards to Surcharge 2.
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A52.
Mr. Riley claims that because of regulation shareholders are already unfairly rewarded
with a reduced risk profile as compared to entities engaged in the open market.
Additionally, Mr. Riley believes that Surcharge 2 places ratepayer money up first in the
most risky time of project development. I have a few comments in regards to this notion.
First, all costs incurred for the project may be reviewed for prudency. The Commission
always has the ability to review expenditures and could easily remove costs they deem
imprudent from the proposed balancing account. If the Commission determines that a
cost is imprudent, then the monies collected for that cost under Surcharge 2 would go to
pay for other prudent costs. Therefore, the ratepayer is not bearing the risk — the risk still
survives with the Company. Additionally, it is very clear in my direct testimony that there
are stop/start points as well as review points in the process to ensure that even if the
project is stopped — the monies collected will be accounted for only after a Commission
decision, and that decision could say to refund all collections to ratepayers. So no risk
shifting has occurred and what risk exists is properly provided a reasonable rate of return,
just as spend by utilities are likewise provided the same level of return. Finally, Mr. Riley
is incorrect that Surcharge 2 is security for later project funding. Surcharge 2 is simply
one funding source and a positive source in that is reduce the capital upon which a return
has to be provided and ensures that rate shock does not occur at the time the project
actually provides water to customers.
Q53. Do you agree with Mr. Riley that Surcharge 2 would discourage prudence and create an
all-in approach or create the potential for runaway costs?
A53. No. As I explained above, all costs incurred in the project will still be subject to a
prudence review. This is just the same as any other project. While the proposal is to use
Surcharge 2 to reduce the charges into the balancing account, it does not suggest that costs
are written off the books and become no longer subject to review because they are covered
by the surcharge collections. There is no reduction of incentive to continue to make the
best decisions in regards to all aspects of the project. To do otherwise could harm the
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utility as it is constantly under review for its actions, and imprudence could cause negative
Commission reactions in many venues.
Q54. Do you agree with Mr. Riley that Surcharge 2 reduces competition and provides an
advantage to California American Water?
A54. Not at all. I believe what is important is the consideration of ratepayers. California
American Water has structured a proposal that it believes provides the best balance in
spreading the cost of the facility over both present and future customers and in doing so
produces rate impact projections that are much less subject to rate fluctuations than would
be achieved by any other financing proposal. Additionally, California American Water is
a regulated entity. It has to "play by the rules" of the Commission in proposing a
methodology to pay for the facility. California American Water has to charge its
customers on a cost basis of the facility.
Q55. Do you agree with Mr. Riley that Surcharge 2 creates inter-temporal inequity?
A55. No. You must look at the entire responsibility for the creation of the plant. The plant in
not for growth — it is for current customers. Current customers are today receiving the
benefit of the proposed facility in that if it wasn't in the planning stages, the State Water
Resource Control Board could have a long time ago required that California American
Water only produce water up to its legal water right. That would have sent the entire
community into a nightmarish situation wherein there would have been very significant
rationing which in turn could have destroyed the economy of the area. Therefore, the
pursuit of the project has and continues to provide significant benefits that today's
customers should pay. Future customers will be bound by the costs of this new facility
that has had significant changes in scope and delays, all of which were the result of
current situations, not future growth or future customers. So it is today's customers that
should shoulder their share of the facility as a result of the situation, and future customers
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should pay a reasonable share of the costs, definitely not all costs as might occur is
Surcharge 2 were eliminated.
Finally, the proposed flat percentage surcharge will unfairly burden low-income
ratepayers. Those customers are already on a very heavily subsidized rate and to say that
a surcharge of 60% across the board should be allocated in some other way is irrational.
Even with a sixty percent surcharge customers being billed in the lowest tier will still not
be paying the cost of service.
Q56. Do you agree with Mr. Riley that Surcharge 2 is not needed to reduce rate shock because
rate shock will exist no matter what?
A56. No. As DRA noted, "the MPWSP would ultimately result in a significant increase of up
to a 100% ($46.0 million annual revenue requirement increase) in rates for the company's
ratepayers in the Monterey Peninsula." Surcharge 2 benefits customers by gradually
increasing rates and avoiding a sudden and substantial spike in rates — rate shock. With
Surcharge 2, rates go up over time. Without it, rates are increased 100% at the time the
project produces water for customer use. A 100% increase would definitely cause rate
shock.
L. Stranded Costs
Q57. Do you agree with Mr. Riley's characterization of Commission practice regarding the
sharing of stranded costs between ratepayers and investors (approximately 90-10)?
A57. As I discussed above, the Commission's review of a request for recovery of stranded costs
is very fact-specific. Contrary to Mr. Riley's claims, I do not believe the Commission has
"abandoned" any of its policies regarding recovery of such costs. In my experience, the
Commission has completed independent reviews of the situations that led to the stranded
costs and based on the prudency and requirements to incur the costs have made a
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determination on the process for recovery. Each and every situation is different and the
experiences in each case will lead to the decision of the Commission.
Q58. Do you agree with Mr. Riley about the costs he asserts California American Water has
recovered in Monterey over the past number of years and that California American Water
has recovered all the costs it incurred?
A58. No, not at all. In the case of the Carmel River Dam project, over $3.6 million was
incurred and only $3.2 million was authorized. As for the cost related to the A.04-09-019,
there has to date only been a little over $31 million approved for both Mr. Riley's items 2
and 3. There has been spend that exceeds the authorized level by well over $1 million that
the Company did not recover. However, the most important item is that the costs at issue
here were for a Monterey water supply alternative. They were not for any specific project
and most of the costs incurred would have been incurred no matter which project was
pursued. In short, the costs incurred in A.04-09-019 are not abandoned project costs as a
water supply project is still being pursued.
VI. WATERPLUS
Q59. Do you agree with Mr. Weitzman that California American Water has proposed Surcharge
2 because it unable to secure financing for the MPWSP?
A59. No. There is nothing in any record where California American Water has ever stated over
the past few decades that it is unable to secure financing on this or any other project.
California American Water as part of American Water is currently able to get financing on
all of its required investments at very good rates as a result of that financing being
obtained from its sister affiliate, American Water Capital Corp.
Q60. Do you agree with Mr. Weitzman's characterization of Surcharge 2 as "robbery"?
A60. Of course not. Contrary to Mr. Weitzman's claims, the purpose of the Surcharge 2
proposal is not to reduce risk, or have shareholders pay nothing, or some other financing
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maneuver. California American Water proposed Surcharge 2 to reduce the annual
revenue requirement once the plant is delivering water to customers and to avoid rate
shock, as well as to place an appropriate level of responsibility on current customers.
VII. SPI ANALYSIS
Q61. Do you have any comments on the SPI analysis?
A61. Yes, I have read Section 5 of the SPI analysis and do have some comments on the total
annual cost of water presentation. In my response I will limit my comments to address
what I believe are concerns more of a regulatory nature and not cover other issues that I
have been told exist in other facets of the analysis.
From a regulatory point of view, there are multiple factors that go into producing an
authorized revenue requirement. It appears that in the SPI analysis they developed what
they call a Capital Recovery Factor (CPR) to estimate the 30-year average revenue
requirement.
First, I have never seen any such factor used in any regulatory proceeding. The factor is
simply 1/2 of the first year's revenue requirement. Annual revenue requirement can vary
greatly especially when deferred taxes are taken into account — for which SPI has not
accounted for tax depreciation in the revenue requirement as required by the Conmission.
Second in looking at all the factors, I do not understand why a 3.33 depreciation was used
when we have stated in our model that it should be more in line with 2.5%. We have also
stated in out supplemental testimony that our current long-term debt interest rate would be
4.25%. In using the 4% coupon rate for the other entities, I don't believe this in the least
captures any financing or reserve costs, both of which can be substantial. So I believe the
current analysis is flawed to a degree. Additionally, the Commission requires that as a
part of the cost of debt for any issuance, the financing cost will have to be included as a
level annual amount added the interest cost. The annual interest cost pus the annual
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financing cost divided by the total net proceeds of the loan becomes the effective cost for
the loan. Again, this procedure is exactly how the Commission requires the true cost of
each issuance to be included in the annual revenue requirement. The Commission
requires that all regulated entities provide the total annual revenue requirement each and
every year and do not allow a utility to do any form of simply average. The fact is that the
first few years of the revenue requirement are more steeply trended downwards due to
deferred taxes. It is simply not acceptable to use a one-year number divided by two to get
an average.
Q62. Does this complete your rebuttal testimony?
A62. Yes it does.
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ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 168, Packet Page 188
Mailed 3/20/2008
WATER/RSK/KOKIDLW/RHG
PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
DIVISION OF WATER AND AUDITS

RESOLUTION W-4678
UTILITY AUDIT, FINANCE AND

MARCH 13, 2008
COMPLIANCE BRANCH
RESOLUTION
RESOLUTION W-4678. NORTH GUALALA WATER
COMPANY (NGWC). REQUEST FOR AUTHORITY TO
BORROW $100,000, UNDER THE SAFE DRINKING
WATER STATE REVOLVING FUND LOAN PROGRAM
(SRF); TO ENCUMBER ASSETS IN CONNECTION WITH
THE LOAN; AND TO INSTITUTE A SURCHARGE TO
PAY OFF THE LOAN.
By Draft Advice Letter filed on November 7, 2007.
SUMMARY
This Resolution grants NGWC the authority requested in the filing.
NGWC requests authority, pursuant to §§ 816 and 851 of the Public
Utilities Code, to borrow $100,000, under the SRF, and to enter into a
secured loan contract with the Department of Public Health (DPH) and the
Department of Water Resources (DWR).' The proceeds of the loan will be
used to finance a planning study to be conducted on NGWC's water
system.
In addition, NGWC requests authority to establish a surcharge to make
payments of principal and interest on the loan and to establish a separate
bank account and balancing account for depositing surcharge collections
and making payments on the loan. As required by the loan contract,
NGWC proposes to appoint a fiscal agent or trustee to manage the funds.
I All statutory references are to the Public Utilities Code unless otherwise indicated.
320203
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Resolution W-4678
March 13, 2008
North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
On January 18, 2008, a public notice of the proposed debt and surcharge
was published in a newspaper circulated in the County of Mendocino.
Subsequently, on January 24, 2008, a bill insert of the proposed debt and
surcharge was mailed to each customer. Two customers responded to the
notice. One requested information about the purpose and handling of the
loan, and one objected to the proposed loan and surcharge.
BACKGROUND
NGWC is a Class C water utility subject to the jurisdiction of this
Commission. NGWC provides water service to approximately 1,033
metered customers in Gualala and vicinity, located approximately 15 miles
south of Point Arena, Mendocino County.
Pursuant to its Income Statement as of December 31, 2006, NGWC
reported that it generated total operating revenues of $740,069 and net
income of $7,529.
The company's Balance Sheet as of December 31, 2006 is summarized
below:
Assets Amount
Current and Accrued Assets $ 592,089
Investments 0
Deferred Charges 682,983
Net Utility Plant 4,596,950
Total Assets and Deferred Charges $5,872,022
Liabilities & Capital
Current and Accrued Liabilities $ 70,863
Long-Term Debt 3,847,238
Deferred Credits 0
Advances for Construction 0
Contributions in Aid of Constructions 1,065,961
Corporate Capital and Retained Earnings 887,960
Total Liabilities & Capital $5,872,022
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Resolution W-4678
March 13, 2008
North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
The $3,847,238 long-term debt, shown above, is a 1996 Safe Drinking Water
Bond Act (SDWBA) loan, authorized by Resolutions (Res.) F-645, and
W-4108, with a term of 35 years, and being paid through a surcharge. The
proceeds of the loan were used for the replacement of existing water
mains, construction of water storage facilities, including a pump station
and emergency generators, and improvements to NGWC's surface water
treatment plant. The outstanding balance as of December 31, 2007, is
$3,754,162.77, with a remaining term of 25 years.
Pending before the Commission, is NGWC's general rate case, filed on
August 1, 2007, seeking an increase in rates of approximately $233,258 or
30%, of present rates, and a request to impose a monthly surcharge of $6.78
for sixty months, to recover extraordinary expenses totaling $420,533.24,
pursuant to Decision (D.) 02-11-004.
On October 30, 2007, NGWC filed an application with DPH for a planning
loan, under the SRF, for an estimated amount of $100,000. NGWC plans to
conduct an investigation regarding alternative source capacity, including
new wells, continued use of existing wells, and desalination of sea water.
The planning study will also include consideration of additional storage
capacity, rehabilitation of existing tanks, the replacement of undersized
water mains, the installation of monitoring systems, backup power-
generation equipment, and improvement of fire-flow conditions within the
system.
NOTICE AND PROTESTS
On January 18, 2008, a public notice of the NGWC's filing was published in
the Independent Coast Observer, a weekly newspaper printed, published,
and circulated in the County of Mendocino.
By bill insert, dated January 24, 2008, NGWC notified its customers of the
proposed planning loan and the surcharge to repay the loan. The notice
also stated that based on the results of the planning study, NGWC may at
a later date, submit a pre-application to undertake water system
improvements with DPH. If the project is fundable, an invitation to
submit application from DPH will be received by NGWC. At that time, a
full application for construction loan will be submitted, subject to DPH's
and DWR's review and approval.
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Resolution W-4678
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North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
On January 29, 2008, a customer sent an e-mail to the Commission's
Division of Water and Audits (DWA), asking for a copy of NGWC's filing.
On January 30, 2008, DWA's Utility Audit, Finance and Compliance
Branch (UAFCB) sent the customer a copy of NGWC's filing and a brief
explanation of the loan and advice letter procedures. On the same day,
staff requested NGWC to respond to the customer's concerns.
On January 30, 2008, another customer sent NGWC a letter questioning the
loan and the surcharge.
By letters, dated February 5, 2008, NGWC provided the first customer with
the components of the estimated cost of the planning study, and informed
the other that the SRF loan facility carries a lower interest rate than
commercial banks.
DISCUSSION
In connection with NGWC's application with DPH for a planning loan,
and in order to comply with the requirements of § 818, NGWC filed the
draft advice letter, to secure Commission authorization for the $100,000
SRF loan, to encumber its property, and impose a surcharge, as required
under the SRF loan program.
A. Description of Financing
According to DPH's Policy and Procedures Manual, planning loans are
generally appropriate where an applicant is unsure of the best means of
solving a particular problem and cannot afford to pay the up-front costs of
evaluating the problem and doing the necessary preliminary engineering
to prepare a construction loan application. Any project that is awarded as
a planning loan will remain on DPH's priority list and will retain its
ranking until such time that a construction loan is executed. However, the
award of a planning loan does not guarantee that a subsequent
construction loan will be offered or available.
In connection with the loan application, DPH assesses the utility's financial
needs to meet water quality standards and its ability to meet the loan
obligations. DWR acts as the lending agency. Loan funds may be used
only for eligible project costs approved by DPH.
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Resolution W-4678
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North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
A planning loan may be used to conduct feasibility studies, evaluate
problems and potential solutions, conduct environmental evaluations,
conduct all preliminary engineering, and prepare a full application for a
construction loan.
The interest rate that will apply to the planning loan will be the same as for
a construction loan and will be determined at the time the planning loan
contract is executed. DPH's approval of NGWC's application will result in
the preparation and execution of an immediate loan contract with DWR.
In connection with the loan, DWR requires a security interest in the
utility's real and personal properties.
Before DWR can disburse funds under the planning loan, the borrower
must provide the following:
(a) Satisfactory documentation of the action taken by its
governing body authorizing it to borrow funds and to
enter into a loan contract, and designating a representative
to execute the contract and to sign a claim for
disbursement of funds.
(b) Satisfactory documentation showing that it has dedicated
a source of revenue for repayment of the principal amount
of the loan plus interest.
(c) Security for the loan.
(d) A separate bank account entitled "Safe Drinking Water
State Revolving Fund Account" for deposit of loan
proceeds.
(e) A fiscal agent who will oversee surcharge deposits and
loan payments.
(f) An initial budget of eligible project costs approved by
DPH.
All recipients of planning loans are required to submit a draft planning
report to the district office of DPH, within 18 months from the date of the
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Resolution W-4678
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North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
loan contract execution. The purpose of this is to assure that all work
performed was eligible for reimbursement, the study addressed the
problem adequately, and any technical, managerial and financial
deficiencies required to be addressed as conditions of the loan were
evaluated.
The repayment of a planning loan will commence within six months from
the date the draft planning report is received and approved, and shall be
fully repaid within five years from when the repayments begin. Should a
construction loan be awarded, the planning loan and the construction loan
may (at the option of the applicant) be combined into one loan with
repayment beginning at the same time the repayment of the construction
loan would normally commence.
B. Use of Proceeds & Cost Estimates
NGWC proposes to use the proceeds of the SRF loan to finance the cost of
studies, planning, and preliminary engineering for various projects, to
enable the utility to meet safe drinking water standards.
NGWC's cost estimates, as described in detail in its fax message to
UAFCB, dated January 30, 2008, are summarized as follows:
Engineering study on potential sources of new water,
evaluation of existing supply, identification of sites for
off-stream water storage reservoir, and preparation of
a long-term plan on storage capacity and system
requirements
Geotechnical investigation to evaluate site, with
subsurface exploration, geotechnical and geological
evaluation of viable site, development of project
feasibility and comprehensive plan
$ 39,500
25,000
Predesign study to establish detailed cost estimates,
design, project priorities, and construction schedules 6,000
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Environmental documentation for categorically
exempt and negative declaration projects, identification
of specific studies and permits

10,000
Financial study on financing requirements, rates,
and surcharges
12,000
Application for Construction Funds preparation,
incorporating reports and studies, using State
guidelines

5,000
Real estate appraisal to establish value of property
and easements 2 500
Total $100,000
Normally, for plant expenditures that will be included in ratebase, the
reasonableness of such expenditures is addressed during a general rate
case. In this case, the plant expenditures will not be included in ratebase
and we will not make a finding in this Resolution on the reasonableness of
the proposed budget. However, for SRF-funded plant expenditures, the
utility may only expend funds on DPH approved project components and
DPH verifies all work performed prior to reimbursing the utility.
Accordingly, we are assured that the payments made on SRF-funded
loans, with ratepayer surcharges, are for proper purposes.
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C. Capital Ratios
NGWC's capital ratios are shown below as recorded and adjusted to give
pro forma effect to the transactions listed:
($)
Recorded Adjustments Proforma
Long-term debt 3,847,238 81.24% 100,000 3,947,238 80.63%
Short-term debt
Subtotal 3,847,238 81.24% 100,000 3,947,238 80.63%
' Common Equity 500 0.01% - 500 0.01%
Paid In Capital - - - - -
Retained Earnings 887,960 18.75% 60 000 947,960 19.36%
Total Capitalization 4,735,698 100.00% 160,000 4,895,698 100.00%
(1) Issuance of $100,000 debt requested in this filing.
(2) Increase in retained earnings of approximately $60,000
(based on Summary of Earnings, Test Year 2008, shown on
Sheet VII-lof NGWC's general rate case filing of August 1,
2007). NGWC is requesting an increase in the rate case
filing, of approximately $233,258 or 30%.
While NGWC's proposed debt does not appear to materially change
NGWC's capital structure to the detriment of ratepayers, capital structures
are normally subject to review in cost of capital or general rate case
proceedings. We will not, therefore, make a finding in this Resolution of
the reasonableness of the projected capital ratios for ratemaking purposes.
D. Loan Approval
NGWC's proposed financing transaction is in the public interest and is
intended to enable NGWC to evaluate and determine the best way to
improve its water system. As a public utility, NGWC has the
responsibility to maintain its quality of service and provide necessary
improvement to its present water system.
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We do not find anything in the customers' concerns that would require the
Commission to reject NGWC's financing request. Public interest dictates
that the utility should have the ability to conduct studies relating to water
system improvements, specifically, if the DPH, the state agency
responsible for water supply health and safety, is involved in the
processing of the loan application, project evaluation, and reimbursement
procedures.
Upon order of the Commission and for proper cause, § 818 allows the use
of proceeds from the issue of debt security for purposes reasonably
required in the operation of a utility.
Section 851 requires Commission authorization before a utility may "sell,
lease, assign, mortgage, or otherwise dispose of or encumber the whole or
any part of its... plant, system, or other property necessary or useful in the
performance of its duties to the public..."
SRF borrowings represent a much lower cost of capital than either equity
or other forms of debt. In addition, there are conditions set by DPH and
this Resolution to ensure proper accounting and handling of the loan
proceeds.
We will authorize NGWC to borrow up to $100,000; to execute a loan
agreement on terms and conditions contemplated herein; and to encumber
its assets in connection with the loan.
E. Proposed Surcharge
NGWC's present rate schedule for general metered service was authorized
by the Commission's approval of Advice Letter No. 60, effective January
26, 2006, which granted a 3.3% increase in rates. In addition to their
monthly bill, customers are responsible for a monthly surcharge to repay
the 35-year SDWBA loan authorized by Res. F-656 and Res. W-4108.
NGWC estimates that it will need $10,639 semi-annually, or $21,278 per
year, to make principal and interest payments throughout the 5-year loan
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term. 2 NGWC estimates the surcharge for each customer will be $1.72 per
month.
The current monthly bill for a 5/8 x 3/4-inch metered customer using
approximately 955 cubic feet of water (at a quantity rate of $3.13 per 100
cu. ft.) would increase from $66.39 to $68.11, or 2.59%, for five years. Of
NGWC's 1033 connections, 897, or 86.8%, are 5/8 x 3/4-inch metered, single-
family residential users.
We are aware that NGWC will not be able to obtain the SRF loan until it
demonstrates that it has the source of funds to be used for repayment of
the loan, and that such dedicated funds are documented in an order or
resolution. To the extent that the source of funds requirement remains a
condition in this low-cost funding, NGWC's financing request cannot be
processed by DPH and granted without a surcharge authorization.
The ratepayers ultimately pay for all water system requirements and
improvements, regardless of the manner in which they are financed. If the
utility were able to borrow the money to make the water system
improvements entirely from regular commercial sources, it would be far
more expensive for the ratepayers than the low-cost state-funded loan.
Likewise, if the utility owners invested their own funds to pay for the
water system improvements, they would be entitled to similar earnings on
such funds.
The surcharge method of recovery ensures that the loan will be repaid
without financial stress to the water utility. The surcharge serves only to
repay the loan and will not generate any profit to the utility owners.
Therefore, it is reasonable to authorize NGWC to impose a surcharge on its
customers, as set forth herein.
The following conditions apply: 3
1. The loan repayment surcharge shall be separately
identified on customers' bills.
2 The proposed $100,000 SRF planning loan is to be repaid over a 5-year term, with an estimated
2.28% annual interest rate, and with the first payment due June 1, 2008.
On February 20, 2008, NGWC, by e-mail, informed DWA that it has no objection to the added
conditions and is waiving its opportunity for formal comment.
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2. NGWC shall use a balancing account to be credited with
revenues collected through the surcharge and to be
charged with payments of principal and interest on the
loan.
3. NGWC shall deposit all surcharge revenues with a fiscal
agent approved by DWR or DPH. Such deposits shall be
made within 30 days after the surcharges are collected
from customers.
4. The surcharge rates to repay the loan shall last for
approximately 60 months, until the loan is fully paid.
5. Any surplus accrued in the bank account shall be refunded
or applied on behalf of the customers when ordered by the
Commission.
6. Changes in future surcharge rates shall be accomplished by
normal advice letter procedure subject to review and
approval.
7. The cost of the studies financed through the surcharge
shall be excluded from ratebase for ratemaking purposes.
F. Fees
Whenever the Commission authorizes a utility to issue debt, the
Commission is required to charge and collect a fee in accordance with
§ 1904(b).
The fee for this financing authority as set forth by § 1904(b) is $200. 4
COMMENTS
While there were two customers concerned about the proposed loan and
surcharge, there were no showings as to why the proposed project would
not lead to improvement of service or why the proposed surcharge could
4 The amount subject to the fee is $100,000. The fee is determined as follows: ($2 x
($100,000/1000)) = $200.
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not be justified. DWA did not receive any formal protests after NGWC
responded to the customer concerns.
Section 311(g) (1) generally requires that draft resolutions be served on all
parties and subject to at least 30 days public review and comment prior to
a vote of the Commission.
NGWC, the only party in this filing, has informed the DWA that it has no
objection to the conditions added to the relief requested in the draft advice
letter, and that it is waiving its right to the 30-day public review and
comment period. These added conditions are to: (1) separately identify the
loan repayment surcharge in its customer billing; (2) remit surcharge
revenues to the fiscal agent, within 30 days of collection; and (3) exclude
from ratebase, the cost of the studies financed through the surcharge.
Accordingly, pursuant to § 311(g) (2), the otherwise applicable 30-day
period for public review and comment is being waived.
FINDINGS
1. NGWC, a California corporation, is a Class C water utility subject to the
jurisdiction of this Commission.
2. The proposed borrowing is for proper purposes.
3. With a surcharge type of recovery, the utility or its owners do not
personally benefit from the planning loan.
4. DWR requires a customer surcharge to repay the loan, and a security
interest on the utility's properties.
5. The surcharge will generate approximately $21,278 annually. Surcharge
revenues will not be commingled with other utility charges.
6. The cost of the studies financed by the SRF loan is not to be included in
ratebase.
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North Gualala Water Co./Draft AL/RSK/KOK/DLW/RHG
7. The reasonableness of any resulting interest rate and cost of money
arising from debt capital are normally subject to review in cost of capital or
general rate case proceedings.
8. NGWC should establish a separate balancing account to be credited
with revenue collected through the surcharge and any interest earned on
the account, and reduced by payments of principal and interest on the loan
and trustee fees.
9. DWR requires a fiscal agent to ensure adequate accountability of
surcharge revenues, interest earned, loan amortization payments and fees
paid to the trust account.
10. NGWC should pay the fee determined in accordance with § 1904(b).
THEREFORE, IT IS ORDERED that:
1. North Gualala Water Company is authorized, pursuant to § 816 et seq.
of the Public Utilities Code, to borrow $100,000, under the Safe Drinking
Water State Revolving Fund; to encumber its assets in connection with the
loan; and to use the proceeds for the purposes described in the body of this
order.
2. North Gualala Water Company shall establish a separate bank account,
managed by a trustee or fiscal agent, as requested in the filing.
3. North Gualala Water Company shall establish a balancing account and
record all billed surcharges, interest earned, and reduced by payment of
trustee fee and principal and interest on the loan, as requested in the filing.
4. North Gualala Water Company is authorized to file in accordance with
General Order No. 96-B, six months from the date the draft planning
report is received and approved by the Department of Public Health or
one hundred eighty days prior to the first semi-annual billing, an advice
letter, which establishes a monthly surcharge on customer bills, with an
equal charge of $1.72 per customer, for a period of five years. The filing
shall become effective on five days' notice.
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5. The authority granted herein shall be subject to condition Numbers 1
through 7, enumerated on pages 10 and 11, of this order.
6. North Gualala Water Company shall file with the Division of Water and
Audits' Utility Audit, Finance and Compliance Branch a copy of the loan
agreement and fiscal agreement within 15 days of execution.
7. The authority granted by this order shall become effective when North
Gualala Water Company pays $200, the fee set forth by Public Utilities
Code § 1904(b).
8. This Resolution is effective today.
I certify that the foregoing Resolution was duly introduced, passed, and
adopted at a conference of the Public Utilities Commission of the State of
California held on March 13, 2008. The following Commissioners
approved it.
/5/ PAUL CLANON
Paul Clanon
Executive Director
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
TIMOTHY ALAN SIMON
Commissioners
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BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF RICHARD C. SVINDLAND
Lori Anne Dolqueist
Manatt, Phelps & Phillips, LLP
One Embarcadero Center
30th Floor
San Francisco, CA 94111
(415) 291-7400
ldolqueist@manatt.com
Attorneys for Applicant
California-American Water Company
March 8, 2013
Sarah E. Leeper
Javier Naranjo
California-American Water Company
333 Hayes Street, Suite 202
San Francisco, CA 94102
(415) 863-2960
sarah.leeper@amwater.com
Attorneys for Applicant
California-American Water Company
307136107.3
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TABLE OF CONTENTS
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I. WITNESS QUALIFICATIONS
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II. PURPOSE OF TESTIMONY
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III. SLANT INTAKE WELLS ITEMS 2
IV. DESALINATION PLANT ITEMS 9
V. MRWPCA OUTFALL ITEMS 13
VI. TABLE 13 WATER RIGHTS AND OPERATIONAL ITEMS 13
VII. SEASIDE BASIN ITEMS 17
VIII. APPROACH TO COST ESTIMATING 17
IX. UPDATE ON MPRWA'S EIGHT CONDITIONS 21
X. CLARIFYING ITEMS 23
307136107 3
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 184, Packet Page 204
BEFORE THE PUBLIC UTILITIES COMMISSION
OF THE STATE OF CALIFORNIA
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)
REBUTTAL TESTIMONY OF RICHARD C. SVINDLAND
I. WITNESS QUALIFICATIONS
Ql. Please provide your name, position, and business address.
Al. My name is Richard C. Svindland. I am the Vice President of Engineering for California
American Water (California American Water). My business address is 4701 Beloit Drive,
Sacramento, CA 95838.
Q2. Have you provided testimony in this proceeding?
A2. Yes, I have submitted both direct and supplemental testimony as part of this proceeding.
My qualifications, prior testimony experience, and prior water and wastewater experience
is included with my direct testimony.
PURPOSE OF TESTIMONY
Q3. What is the purpose of your rebuttal testimony?
A3. The purpose of this rebuttal testimony is to address items raised by the various parties in
the proceeding. Specifically I will be discussing the following areas:
(i)
Slant intake wells, including configuration, layout and coastal erosion;
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(ii) Desalination plant including costs assumption, partial second pass
requirements, operations and maintenance (O&M) cost assumptions;
(iii) The Monterey Regional Water Pollution Control Agency (MRWPCA)
outfall;
(iv) Table 13 water rights, operation during an outage, and desalination plant
operating levels;
(v) Seaside Basin;
(vi) Approach to cost estimating;
(vii) Update on some of Monterey Peninsula Regional Water Authority
(MPRWA) eight conditions;
(viii) Update of Pacific Grove projects; and
(ix) Lastly, address and clarify prior calculations used to compute various costs.
III. SLANT INTAKE WELLS ITEMS
Q4. What is the current proposed location of the slant test well and the proposed slant wells?
A4. In the direct testimony of Lloyd Lowery on behalf of the Marina Coast Water District, Mr.
Lowery indicates that California American Water proposes to "construct and operate a
series of wells on the Cemex (aka Lonestar) property.
, , 1
As discussed in my supplemental
testimony, we moved the location of both the slant test well and the proposed slant well
field seaward in order to avoid the threatened snowy plover bird which has habitat on the
dry portions of the beach. Please see Figure 5 of Attachment 11 to my supplemental
testimony. Additionally attached to this rebuttal as Attachment 1 is the project description
for the slant test well. Please note the location of the mean high tide line on Figures 4 and
5 of this attachment. This mean high tide line serves as the property line between the
CEMEX property and the State Lands Commission (SLC) property. The location of the
test slant well as it enters the ground is, as is the case with all wells planned, to be located
on SLC land and not CEMEX property. California American Water will only need to use
Direct Testimony of Lloyd Lowery, Q29, pg 14, line 9.
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CEMEX property for access to the drilling locations. Furthermore, the screens located on
the slant wells will all be located on SLC property and not CEMEX property. Thus we
are not withdrawing any water from the CEMEX property.
Q5. Why is California American Water proposing a test slant well?
A5. California American Water firmly believes that it will be able to draw greater than 97%
seawater from the formations located beneath the ocean floor. We believe that there is a
location that can be reached by slant wells that will pull this seawater vertically downward
from the ocean floor without disruption to other users in the formations. The purpose of
the slant test well is to formally prove this concept and to further prove the capacity that
each well can obtain, while also gaining water quality data that will benefit the design of
the desalination plant. As pointed out in the direct testimony of Joe Geever on behalf of
the Surfrider Foundation, "horizontally drilled slant wells" would eliminate the intake and
mortality of marine life," and are likely to be included in the Ocean Plan Amendment. 2
Additionally, Kris Helms on behalf of the Monterey Peninsula Regional Water Authority
concludes:
We concluded that to permit a desalination project in Monterey
County, the California Coastal Commission will likely require the least
environmentally harmful feasible alternative for the source water
intake. Subsurface water intake is likely to be viewed by the Coastal
Commission as the least environmentally harmful alternative, and
therefore, we anticipate that the Coastal Commission will require that
subsurface intake be fully explored for feasibility before considering
proposals for permitting of an open water intake. In other words, we
anticipate that the Coastal Commission will not permit an open water
intake unless subsurface intake options are proven to be infeasible or
2
Direct Testimony of Joe Geever, page 4, line 26.
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environmentally less desirable than the proposed open-water intake.
The Cal-Am Project proposes to pursue subsurface intake in order to
avoid significant environmental impacts and comply with permitting
policies. 3
Q6. Do you think the slant wells will work?
A6. Yes. Based on previous studies that apply to vertical wells, Joseph Oliver, on behalf of
the Monterey Peninsula Water Management District (MPWMD) questions the specific
capacity of our slant wells in the shallow dunes aquifer. 4 The major benefit of the slant
well concept is the large amount of screened area relative to the vertical depth and thus the
fact that a lot more screen area is exposed directly to the aquifer. Using a 22 to 28 degree
slant well angle yields between 2.1 and 2.6 times more screen length and more
importantly screen area per vertical foot. In terms of screen surface area, assuming a 12-
inch diameter screen section, the slant well will have between 6.6 and 8.0 square feet (SF)
per vertical foot vs. 3.1 SF per vertical foot for a vertical well. Additionally, the shape of
the drawdown cone is different than a vertical well due to the large somewhat horizontal
nature of the screen area. While the test results referenced by MPWMD indicate a
specific capacity of 37 gpm/ft, the Dana Point slant well was able to achieve a discharge
rate of 2,000 gpm with a well efficiency of 78% and a specific capacity of 69 gpm/ft, 5
which indicates the technology is capable of achieving the desired results. Please also
refer to the rebuttal testimony of Peter M. Leffler, P.G., C.Hg, which also addresses this
topic and reinforces the ability of the slant well to achieve the desired hydraulic results.
Therefore, it is imprudent to assess the performance of our proposed slant wells using data
from a report that assessed vertical wells.
Ultimately, the reason for the test well program is to prove out the performance of such a
3 Direct Testimony of Kris Helm, Q&A 12, page 6.
Direct Testimony of Joseph Oliver, Q8, pages 4 — 7.
5
Report No. 152, Result of Drilling, Construction, Development, and Testing of Dana Point Ocean Desalination
Project Test Well, U.S. Department of the Interior Bureau of Reclamation, January 2009, page 48.
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well within the local geology and to determine the desired number of wells needed to
achieve a reliable desalination plant feed rate. Based on California American Water's
discussions with multiple California regulatory agencies, 6 we believe it is our burden to
prove the feasibility of a sub surface intake system before we can consider other intake
options.
Q7. Is 20 feet of driving head enough for a gravity intake system?
A7. Yes, but this will be determined and / or verified by the slant test well. Using the specific
capacity values suggested by Joseph Oliver of MPWMD indicates that 20 feet is not
enough; however, if we use values that were able to be achieved by the Dana Point slant
test well, then 20 feet is within 30% of what is needed for full scale slant intake well
system without groundwater replenishment (GWR) and is within 10% for what is needed
with GWR. At this point, based on what we know, we believe this is a good starting point
for our basis of design. Final depth and length for the slant test well will determined upon
completion of the monitoring wells and final bury depth for the entire system will be
based on the results of the full scale slant test well and ongoing coastal erosion review.
Q8. What options would be available if the 20 feet of driving head were not enough or if the
gravity intake did not work?
A8. First, we would consider lowering the control vault that sets the driving head limit. There
is not a technical reason why this could not be lowered another 10 to 15 feet, thus
allowing additional driving head. The costs to lower this would be increased, so before
making that decision we would consider two other options that are already a part of this
project. Those options include the use of Ranney wells as identified in our November 1,
2012 Contingency Plan filing, by installing pumps into each slant well and moving back
up the beach, or lastly using the "second best" options as discussed in the testimony of Joe
Geever.
6
Direct Testimony of Bradley Damitz, Exhibit 1, page 6
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Q9. Should you permit multiple intake options at once as referenced by MPWRA &
MPWMD?7
A9. As part of my supplemental testimony I have discussed the concerns of attempting to
permit two differing items at the same time for the same project in paralle1. 8 As an
example, permitting an open ocean intake versus a subsurface intake could actually be
slower than moving in a linear fashion because many agencies like National Marine
Fisheries Services (NMFS or NOAA) have position papers showing preference for
subsurface intake over open ocean intakes. 9 While we see certain advantages if the
regulatory agencies would not object, it is important to note the design of an ocean open
intake is relatively straightforward and could easily be designed within the time
constraints of this project. The permitting of the open ocean intake is another matter and
is likely to take much longer than the subsurface system; however, if the slant test well
proves unsuccessful, then the regulatory agencies will need to be more receptive to open
ocean intake because a subsurface intake was tested. Joe Geever of the Surfrider
Foundation, indicates this when he discusses the option of using wedge wire screens as the
"second best alternative." 1°
Q10. Larry Hampson with the MPWMD believes the project was not noticed correctly by the
Commission CEQA staff. 11 Do you agree with this?
A10. No, we believe the notification that was used accurately described our intake system.
which is comprised of slant wells located on the beach that extend out under the ocean
floor. This has always been the case. The only change we have made is to move the
location on the beach where the slant wells enter the ground.
7 Direct Testimony of David Stoldt, Q&A8, item 6, page 7, line10.
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Supplemental Testimony of Richard C. Svindland, Q&A 27.
9 Direct Testimony of Bradley Damitz, Exhibit 1, page 6.
I° Direct Testimony of Joe Geever, page 5, line 1.
11 Direct Testimony of Larry Hampson, Q&A8, page 9, line 8.
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Q11. Several parties have concerns with coastal erosion and the affects of the slant test well on
sand migration. 12 Can you address those concerns?
Al 1. Yes, as part of the work on the slant test well, California American Water through RBF
Consulting has retained Dr. Scott A. Jenkins and David S. Skelly, P.E. to conduct a study
titled "Littoral Sand Transport and Equilibrium Beach Profile Change at Updated
Monterey Peninsula Water Supply Project Slant Test Well Site." A Technical
Memorandum (TM) is attached as Attachment 2. In summary, this TM indicates that our
proposed construction technique will not impact or change the migration of sand around
the peninsula. Furthermore the TM provides some initial estimates of beach erosion
which tends to be cyclic and provides a starting point for the design of the slant wells and
appurtenances.
Q12. How will coastal erosion be accommodated in the design of the slant wells?
Al2. To date we have not addressed the potential effects of long term coastal erosion on the
slant wells. As previously discussed in a prior question, a TM analyzing short-term
coastal erosion effects has been prepared and used in the preliminary design of the slant
test well. Further studies will be performed to determine the extent to which the facilities
must be buried such that they are not exposed by long-term coastal erosion.
California American Water's goal for the slant test wells is to design a system that will
last as long as possible both in terms of hydraulic and water quality performance as well
as in holding up to the effects of both sea level rise and coastal erosion. The previous
Environmental Impact Report (EIR) for the Regional Desalination Project, which included
a slant well project north of Marina, investigated coastal erosion, and it is our
understanding that the current EIR will as well. California American Water will design
these facilities with these erosion rates in mind and will expand upon the previous work as
12 Direct Testimony of Larry Hampson Q&A8, page 9, line 9 and Direct Testimony of Bradlely Damitz, page 6, line
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needed to be able to permit these facilities.
Q13. Can the well clusters be located closer together to reduce costs?
A13. The Division of Ratepayer Advocates (DRA) have suggested that the slant well "clusters"
should be spaced closer together so as to reduce costs. 13 The graphics shown in the
Project Description that was attached to my supplemental testimony show a north and a
south well cluster which are separated by approximately 1,400 feet and a test well that is
another 200 feet south of the south cluster. The cost estimate is actually based on use of
the alternative well cluster shown between the north and south clusters and the south well
cluster and the test well. Therefore, the total distance of beach well collector pipeline is
900 LF. It is not possible to space the well clusters at 450 feet because the tip of the
northernmost well of the south cluster and southernmost well of the north cluster would
overlap. Separation of the tips of these two wells by at least 150 feet is recommended in
order to maximize the capacity of the wells. Further, should the north cluster be used for
technical reasons in the final configuration instead of or in addition to the alternative
cluster shown in the project description, the additional beach collector pipeline
requirement would be 700 LF. This is an example of additional costs that could occur that
would be covered by contingency.
Q14. Can the sheet piling amounts be reduced to save costs?
A14. DRA14 used the figures in my supplemental testimony to estimate the sheet piling area
requirements. These figures are not design drawings and do not provide inforniation at
"design accuracy." They are for illustrative purposes only. The preliminary dimensions
of the sheet piling are as presented in the cost estimates. The final requirements and size
of the sheet piling will be determined based on the slant test well program and permitting
13 Direct Testimony of DRA, Ch. 3.C. la.vi ., page 3-12, line 10.
14 Direct Testimony of DRA, Ch. 3.C.1a.iii., page 3-9, line 20.
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requirements that are yet to be determined and as such it is premature to reduce these
costs.
IV. DESALINATION PLANT ITEMS
Q15. Why did California American Water purchase 46 acres for a 9.6 MGD desalination plant
site, and is this property too big?
A15. George Riley in his direct testimony questions the purchase of California American
Water's desalination property. 15 The parcel that California American Water purchased for
the desalination plant is approximately 46 acres in size. This compares to the over 200
acre parcel Marina Coast Water District (MCWD) purchased for its desalination plant site.
Our land includes a relatively flat 25 acres on top with the remaining acreage on a hill that
extends down into the Salinas River flood plain. The purchase price for this tract was
attractive at less than $15,000 per acre and this size parcel did not need to be split off or
sub-divided from any other property. Basically, this purchase was a clean transaction with
no issues and no site contaminations. If we compare this to a site around Moss Landing
that is on the market for approximately $30 million 16 and is approximately 55 acres in size
($545,454 per acre), it is our belief that we have a superior site that was obtained for a
more than reasonable price and is approximately seven miles closer to our existing
customers.
Q16. Why is the desalination plant located north of Marina?
A16. The main three reasons are: (1) the geology for the slant wells is promising in that they are
near the mouth of the Salinas River which has deposited large amounts of sands and
gravels over thousands of years, (2) most importantly it is close to MRWPCA's existing
outfall which allows for an efficient way to dispose of our brine discharge, and (3) it is
next to the landfill which provides additional power options. For every mile we are to
15 Direct Testimony of George Riley, Q&A 12, part b, line 23.
16 Cost from website (http://www.thepeopleswater.com/costs.html)
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locate the plant south we replace water pipe with brine pipe. Brine pipe must be non-
corrosive and when pumping over large distance, it becomes more expensive to have
thicker wall non-corrosive brine pipe than standard wall water pipe.
Q17. Is a partial second pass on the reverse osmosis (RO) system required?
A17. Yes. DRA recommends the elimination of the second pass so as to reduce costs. 17 Please
see Attachment 3, which is a technical memorandum from Trussell Technologies that
addresses the need to have a partial second pass. In summary, a single pass RO system
can likely barely achieve the current California Department of Public Health (CDPH) goal
in terms of boron rejection. Over time as membrane performance wanes, it will not be
possible to meet the state's boron goal. Please also refer to the rebuttal testimony of Eric
Sabolsice who discusses this issue as well and provides some perspective on how the Sand
City Desalination plant operates in terms of boron rejection. Please also refer to
Commission decision D10-12-016 where this issue was also deliberated. 18
It is also important to note the recent study commissioned by the Monterey Peninsula
Regional Water Authority (MPRWA) that retained SPI to evaluate our project in addition
to two other projects at Moss Landing. Their report also recommended the use of a partial
second pass to insure State water quality goals are met and to provide a water quality
consistent to historical Carmel River supplies.
Q18. Do density differences between fresh water and seawater make a difference in terms of
energy costs as discussed by DRA? 19
A18. Yes. We have covered the effects of density based on how we estimated the pumping
loads. As an example, we assumed the RO high pressure feed pump would operate at 970
psi. This is a typical value for the operating pressure needed to process seawater through
17 Direct Testimony of DRA, -Ch. 3.C. lb.ii., page 3-14,
18 D10-12-016, Section 12.1.1, page 124-126.
19 Direct Testimony of DRA, -Ch. 4.C. lc.i., page 4-5.
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a RO membrane and as such this pressure assumes a seawater density. Another example
we looked at was the effect of pumping seawater from the intake wells to the desalination
plant. Based on our calculations, the effect of density results in a difference of less than 5
feet or around 2 psi. Since we have yet to set the elevations of the raw water feed tanks at
the desalination plant, we are well within the planning level estimates at this point in the
design effort.
Q19. Can you delete the redundant calcite contactor?
A19. No. DRA suggests reducing the costs associated with Calcite Bed System by $200,000,
claiming that calcite system was double counted. 2° The line item "Process Equipment" in
E44 refers to chemical handling equipment. This equipment is in addition to the Calcite
Contactors (cell E45 capital cost tab of the excel spreadsheet that is a part of the Finance
Model) that houses the calcite for post treatment. Therefore, we disagree with the
reduction request of $200,000.
Q20. Why is remineralization a critically important unit operation in desalination facilities and
what are the short and long term implications of inappropriate design on water quality and
distribution system assets?
A20. The American Water Works Association, Manual of Water Supply Practices, M61, 1 st
edition, page 37, offers the following in regards to post treatment:
Because RO [reverse osmosis] treatment removes most of the
hardness and alkalinity of the source seawater, RO permeate must
be remineralized to prevent corrosion in the distribution system
piping and to produce a finished water that is aesthetically
acceptable to the customers. It is typically best to match existing
distribution system water quality to the maximum extent possible to
20
Direct Testimony of DRA, -Ch. 3.C.1c.i., page 3-15.
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avoid customer complaints or problems with pipeline corrosion or
release of scale in the distribution system. Such concerns are
common to all RO design; however, unlike brackish RO systems,
where a percentage of raw water can be bypassed around the RO
for product water stabilization, seawater RO facilities must make
use of an external source of hardness and alkalinity.
As stated above, RO permeate must be stabilized to insure that short term aesthetics are
satisfied and long terms corrosion problems are abated. It is vital that the post treatment
system have the same or better redundancy than the RO skids to avoid the above
referenced problems. Therefore, we believe it is imprudent to reduce any costs associated
with post treatment.
Q21. Should the backwash system be the same for both plant sizes?
A21. Yes, DRA suggests the backwash system should be the same for both desalination plant
sizes. 21 We acknowledge an error in the cost estimate and agree that the filter backwash
systems for both plant sizes should be the same because the flow rate to backwash the
pretreatment filters is the same regardless of plant size. The difference of $50,000
between the two items disappears at the bottom of the cost estimate when a round off
function is applied which rounds the total estimate to the nearest $100,000 and therefore
corrects the error.
Q22. Do you agree with DRA that the raw water or feed water main should be a 36-inch
diameter main?22
A22. No; however, we are talking about the same pipe size. Generally when discussing pipe
size, the nominal dimension given is in reference to the inside pipe diameter. Previously,
21 Direct Testimony of DRA, Ch. 3.C. lb.i., page 3-13.
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when we discussed the 36-inch diameter pipe we were referring to the inside diameter of
the pipe which as indicated is the general standard when discussing ductile iron and steel
pipe sizes. Subsequently, we have switched to the convention used for referring to the
size of the high-density polyethylene (HDPE) which does not refer to the inner diameter
because the wall thickness of HDPE pipe can be up to several inches in thickness. The
actual inner diameter of the 42 inch HDPE that we are proposing is approximately 35-
inches depending on pressure class. Therefore, a 42-inch HDPE pipe is recommended to
limit velocity and thus headloss and transients in the pipe for the 9.6 MGD desalination
plant.
V. MRWPCA OUTFALL ITEMS
Q23. Do you believe a cost cap should be included for the Brine Discharge Facilities as
suggested by DRA?23
A23. No. California American Water agrees that design and final decisions on brine discharge
should consider and comply with the latest Ocean Plan. Further modeling and analysis on
brine disposal through the MRWPCA outfall will be performed during the preparation of
the EIR. Estimates of connection facilities and charges are based on discussions with
MRWPCA that initially occurred in the 2009 time frame, and these discussions have not
been finalized, therefore, California American Water does not agree with an arbitrary
adjustment of this value in the cost estimate, especially considering the potential need to
modify the outfall.
VI. TABLE 13 WATER RIGHTS AND OPERATIONAL ITEMS
Q24. How was Table 13 accounted for in the sizing of the desalination plant? 24
A24. Table 13 water rights on the Carmel River have yet to be approved by the State Water
Resources Control Board, but it appears those rights will be subject to the similar Carmel
23 Direct Testimony of DRA, -Ch. 3.C.1c.i., page 3-15
24 Direct Testimony of David Stoldt, Q&A13, page 10, line 20.
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River flow criteria as in the aquifer storage and recovery (ASR) water rights permits.
Essentially this means that the Table 13 water will only be available at the same time of
year as ASR water is available and is therefore limited to the actual number of river flow
days in excess of the flow triggers and the existing production capacity of the wells and
treatment plant on the Carmel River. Furthermore, Table 13 water rights can only be used
within the Carmel River basin. We have analyzed the amount of water used by customers
in the basin during the time of year when the river is sufficiently flowing and determined
that an absolute best case scenario (i.e, wet year) would be for 500 to 600 AF / year to be
available. In a dry year, we could expect 0 AF of Table 13 water rights. Thus, when we
say we have sized the plant to accommodate Table 13 flows, we are saying that Table 13
does not affect the size of the plant because we have had to assume a 0 AF / year scenario.
We do acknowledge, however, that should we be able to achieve 500 to 600 AF / year of
Table 13 water rights, then we would be able to lower the operating level of the
desalination plant by approximately 5% or conversely those rights could be used first in
the year to allow other existing rights to be used later in the year for emergencies.
Q25. Please address concerns from Larry Hamspon with the MPWMD in regards to plant
outages and pumping from the Carmel River during the summer? 25
A25. In the event of an extended outage of the desalination plant, the existing production
facilities within the Monterey System can physically produce enough water to meet
system demands. Furthermore, with additional ASR wells constructed and permitted for
extraction as planned for in this project, the Monterey System and specifically the Seaside
Basin will have enough water to meet system demands for an extended period. The issue
remains that all sources have regulatory constraints as to the amount of supply available
each year. In the case of ASR and GWR, the annual supply quantity is constrained by
amounts banked in the Seaside Basin. In the case of the Carmel River, the annual supply
is constrained by water rights and certain flow criteria for many of those rights.
25 Direct Testimony of Larry Hampson, Q&A7, page 5, line 23 to page 8, line 11.
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While MPWMD is somewhat correct in their analysis that if a desalination plant outage
were to occur in June (1,700 AF / month demand), California American Water may not be
able to offset such an outage with increased production from the Carmel River alone
without exceeding its legal water rights on the Carmel River (presuming that the actual
production schedule is as presented in Tables 2 and 3 of Attachment 1 of my supplemental
testimony), California American Water maintains that it has a diverse source of supply
comprised of water from multiple sources that can be utilized. For example, in response
to an extended outage of the desalination plant in June, a combination of the following
solutions could be employed:
1. Increase Carmel River production to the extent possible without exceeding annual
rights or causing the existing Begonia plant to completely shut down in later
months of the year. This could provide approximately 500 to 700 gpm (60 to 100
AF/month) as is currently contemplated for normal summer years.
2. Increase production from the Seaside Basin whereby California American Water:
a. Accelerates its use of native groundwater rights. Up to 1,474 AF per year
or maximum of 300 to 400 AF / month with less usage for the rest of the
year.
b. Draws upon water banked from ASR, GWR, or banked desalinated water
(through in-lieu use of desalination rather than native seaside water). This
could be 800 - 1000 AF / month.
c. Temporarily forgo Seaside replenishment and barrow from replenishment
amount. This could be up to 100 - 200 AF / month
3. Institutes curtailments of demand using existing rules and tariffs. This could be
100 — 200 AF /month.
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It is too speculative at this point to determine exactly how California American Water
would modify its operations in response to a prolonged desalination plant outage.
However, in all cases the system would benefit from a supply reserve built up in the
Seaside Basin. With the proposed Project configuration, California American Water
believes that over time such a reserve will be established in the Seaside Basin as ASR
matures, prior to the Seaside Basin reduction, and during the period prior to additional
demands such as the Pebble Beach allocation, lots-of-record, and tourism bounce back are
fully realized.
It is also important to note that California American Water and American Water operate
water treatment facilities of all types and complexity all across the country and an
extended plant outage is an extremely rare event. In my nearly 23 years of working in the
water industry across key states, I cannot recall ever hearing of or being involved with a
water treatment plant facility that was off-line or down for more than a couple of days in a
system where it was critically needed.
Q26. Please clarify the need for the desalination plant to operate at a level above 95%? 26
A26. As I indicated in my direct testimony, it is uncommon to design a new facility to operate
at such a high level as soon as it is constructed. Because this is a replacement supply, we
need the size of the plant to be able to produce the desired outflow (9,752 AFY) 95% of
the time so as to meet existing demands. This does not mean that the plant will be
operating with all units on 95% of the time, because we will have redundant units. The
redundant units are needed so we can achieve the 95% operating level. For cost
estimating purposes, we assumed one extra unit per major process category; however,
during detailed design, the engineer of record may choose to increase the number of
redundant units for vital components so as to insure a 95% operating level.
26
Direct Testimony of Mike Zimmerman, Q&A9, page 6.
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VII. SEASIDE BASIN ITEMS
Q27. Does California American Water agree that a Seaside Basin mixing study should be
conducted?
A27. Yes, we believe it will be important to monitor and predict water quality in the Seaside
Basin when native water, desalinated water, GWR and ASR from the Carmel River are all
mixed within the basin. As the basin has been adjudicated, we believe the Seaside Basin
Watermaster should lead this effort.
Q28. Should this mixing study be a part of the EIR?
A28. Yes; however, since the mixing of these waters will not occur for several years, we
believe it will be difficult to fully review this item now. Therefore, considerations should
be given to making this a part of the mitigation and monitoring plan that will be an
outcome of the EIR.
VIII. APPROACH TO COST ESTIMATING
Q29. Please explain how California American Water approached the mitigation, contingency,
and implementation factors for its costs estimates on the desalination components and
California American Water Only Facilities? 27
A29. As discussed in DRA's testimony, the factors (percentages) used to establish allowances
for estimating implementation and contingencies were discussed extensively in the cost
workshops for the Regional Project in 2009. For implementation costs, the percentages
used by California American Water for estimating the North Marina Alternative were 30
percent of base construction cost for design-bid-build components and 15 percent of base
construction cost for design-build components. The lower percentage for design-build
was used because some of the engineering costs are imbedded in the base construction
cost estimate for design-build components.
27 Direct Testimony of DRA, Chapters 2 and 5.
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In the updated cost estimate, California American Water decided to use a uniform
allowance of 20 percent for implementation costs, which is consistent with historical
practice, as acknowledged by DRA in its testimony. The issue here is that DRA has
recommended adjusting the implementation factor down to 15 percent, arguing that the
slant test well program is an implementation cost and that the test well is a separately
budgeted item that represents approximately 5 percent of the MPWSP base construction
cost. We disagree with this approach. The major portion of the costs for slant test well are
for construction, and these construction costs have always been carried as base
construction costs in previous estimates and should not be considered as implementation
costs. The slant test well construction costs require implementation costs, and these have
historically been captured along with all other implementation costs when the
implementation factor is applied to total base construction costs.
Regarding the allowance for contingency costs, California American Water did originally
propose a factor of 20 percent in May 2009 prior to the Commission's workshops for
purposes of estimating the costs of the Moss Landing and North Marina Alternatives. In
the workshops, the Bureau of Reclamation (which was advising the DRA), stated an
opinion that 20 percent was too low, and that a factor of 25 or 30 percent should have
been used for a project that was at that state of definition and development. As a result,
the contingency factor used in the final cost comparison tables for the Moss Landing and
North Marina Alternatives was 25 percent.
DRA argues that the contingency factor should be adjusted back to the originally proposed
20 percent because the current MPWSP is more well-defined and does not have the same
degree of uncertainty as existed in 2009, and cites a number of changes in project
circumstance that have reduced uncertainty. Other than the fact that the land costs for the
desalination plant site are now known, California American Water does not agree that any
of the other changed circumstances cited by DRA have significantly changed the
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uncertainty in the project to warrant a change in the contingency factor. We believe this
determination is best made by the Bureau of Reclamation, who raised the issue in the first
place.
On the Mitigation Allowance, 28 DRA maintains that the environmental impacts associated
with a smaller intake system for the 6.4 MGD desalination option will be less than the
environmental impacts associated with the intake system for the 9.6 MGD desalination
option because there will be fewer intake wells. California American Water disagrees
because the number of well clusters will be the same and the impact on snowy plover
habitat, if any, will be the same. This is why California American Water used the same
value for mitigation costs for both options.
Q30. Does California American Water agree with deleting the accuracy range factor for the
desalination plant and California American Water Only Facilities? 29
A30. No. At the time California American Water applies for a Certificate of Public
Convenience and Necessity ("CPCN"), California American Water is obligated to notice
its customers of the worse case bill impact. A part of determining this worse case bill
impact is estimating the capital cost of the project. Because we bid out nearly every
aspect of the project, almost every dollar is affected by market conditions at the time the
different project components are procured. Thus, in our opinion and based on the decision
by the Commission in the last project, the use of the 25% accuracy range is appropriate in
order to estimate worse case bill impacts.
Q31. Does California American Water agree with cost cap amounts for the overall project? 3°
A31. No. The simply reality of the project is that California American Water is being ordered
by the State Water Resources Control Board and by the Court that presided over the
28
Direct Testimony of DRA Ch. 2 C.1, page 2-3.
29
Direct Testimony of DRA, Chapters 2 and 5.
30
Direct Testimony of DRA, Chapters 2 4.C.2b and 5.C.2.a.
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Seaside Basin adjudication to replace nearly 70 percent of its water supply. We have done
our due diligence to estimate the cost to implement such a project, but the fact remains the
cost will be what they will be and California American Water will do everything it can do
to bring the cost in lower than the estimate. We have signed a Governance Agreement
that will ensure public agency representation in all the important aspects of the
procurement. There is no need to impose a cost cap under these circumstances of
transparency and multi-agency involvement.
Additionally, there are several permits which may have conditions which are beyond our
control and we do not have special insight to what these conditions may require so a cost
cap may mean the project cannot move forward due to a permit condition. The potential
need for UV disinfection is an example where the cost cap would be problematic. In a
response to a data request from DRA, California American Water indicated that it does
not currently plan to install UV but, if required to do so, would cover the cost with the
contingency funds for the project. DRA in their report recommended reducing the
contingency funds and installing a cost cap on the project. Thus, in the event the
California Department of Public Health does require UV disinfection as it did for the Sand
City Desalination plant, and if the cost cap were in place with a reduced contingency fund,
then there would be insufficient funds to cover an item required by a State agency and
more importantly needed for an operating permit. We do not believe this is fair or
practical.
In the last case, D10-12-016, we had a cost cap, but we were able come back to the
Commission for reasonable and prudent expenses above the cap. That approach appears
reasonable, but we believe the cost cap should be set at least at the amount set forth within
our application.
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IX. UPDATE ON MPRWA'S EIGHT CONDITIONS
Q32. Can you provide an update on the eight conditions presented in the testimony of Jason
Burnett of behalf of the MPRWA? 31
A32. Yes, several items are being discussed by other witnesses but I can address conditions 2,
3, 5, 6, 7 & 8. Condition 1, which relates to a significant contribution of public funds, is
discussed in the rebuttal testimony of Jeffrey Linam and other witnesses who provide
further information on this subject. Condition 4, which relates to the limited use of the
Surcharge, is discussed in the rebuttal testimony of David Stephenson. I will also
comment on Condition 4.
Condition 2 relates to the Governance Agreement and that document was executed by
California American Water's President Robert MacLean on March 7. See Attachment 4
for a copy of this Agreement. In addition, it is my understanding that the first meeting of
the governance committee is scheduled to be held at the offices of the MPWMD on March
13th. Condition 3 relates to obtaining power at the lowest possible costs. California
American Water will continue to work with all parties to seek lower power costs. We
have recently met with representatives from the Monterey Peninsula Regional Waste
Management District to continue our discussions in regards to the use of energy generated
by land fill gas and plan to have additional meetings with PG&E to discuss how we can
achieve E-20 Transmission Voltage service. We will also work with the Governance
Committee to advance other options such as renewable energy initiatives.
Condition 4 relates to the use of Surcharge 2 funds to pay for "tangible assets." 32 The
concern is that in the event of a failed project, monies paid under Surcharge 2 would be
stranded. While I acknowledge this concern, it is important to note that the California
American Water Only Facilities which have an estimated cost that is greater than the
31 Direct Testimony of Jason Burnett, Q&A14, page 6
32 Direct Testimony of Jason Burnett, Q&A14, Condition 4, page 6.
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expected collection amount of Surcharge 2, are needed no matter what water supply
solution is needed, and in fact at one time California American Water was petitioning to
move forward with these facilities so as to improve the delivery of ASR water into and out
of the Seaside basin. Thus, even if the desalination components of the MPWSP are
delayed the surcharge could be used to fund the California American Water only facilities.
Condition 5 relates to the subsurface intake wells, and we have provided updated rebuttal
testimony in this area and understand that the Commission is also reviewing these items as
a part of its CEQA review for this proceeding. I do want to point out that our mission is to
find the area under the ocean floor that has very high seawater component, while at the
same time providing a reliable quantity of flow. Based on Dana Point, and knowing how
Ranney wells function and where they have been used, we are confident this approach will
work and that it will be viewed favorably by the regulatory agencies.
Condition 6 relates to alternative intake strategies. I have addressed some of the concerns
with this condition earlier in this testimony, but wish to express our understanding of the
need to have these contingencies. We are open to working with the MPRWA to address
these concerns and develop an approach with the regulatory agencies that does not cause
the permitting process to slow.
Condition 7 relates to providing written proof from the State demonstrating California
American Water's ability to secure SRF funding. As discussed in our Application for this
project, EPA sent a letter to the Division of Financial Assistance at the State Water
Resources Control Board addressing this issue. California American Water is actively
working on the credit review package of the SRF loan package and will let the parties
know when it is achieved.
Condition 8 relates to sea level and coastal erosion issues which I have discussed earlier in
307136107.3
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 206, Packet Page 226
this testimony. It is our understanding that these items will be covered in the EIR for the
project, but it is important to note that when California American Water purchased the
desalination plant site, we did so after reviewing the tsunami maps for the region. The
recent changes to the slant wells that were discussed in my supplemental testimony are
actually more resistant to sea level rise, tsunami events and earthquakes because we have
removed the mechanical portions of the well and have now proposed a gravity system
where the intake pumps are protected by 2000 foot wide sand dunes that are over a
hundred feet above sea level.
X. CLARIFYING ITEMS
Q33. Did California American Water double count the energy estimates? 33
A33. No. That is not the case. This issue has been discussed and described in a response to a
data request (DRA-A.12-04-019-CAW). To further illustrate and clarify how the
calculation is performed; a step-by-step explanation using the cells references in the
capital cost spreadsheets found in the Finance Model for Filtrate Forwarding Pumps (cell
E92) is described below. Please see Attachment 5 for examples of the spreadsheet.
1. The flow rate is converted to MGD by annualizing the 6-month production (in AF) by
multiplying by 2 and dividing by 1120 in cells G93 and G94.
2. The flow rate is converted to gpm in cells H93 and H94.
3. The pressure requirement is entered in cell F95 in psi and converted to feet in G95.
4. The summer pump power requirement is calculated in hp in cells E96 and E97 and
converted to KW in F96 and F97.
5. The total hours in the season is calculated by multiplying the number of days in the
season times 24 hours in cells G96 and G97.
6. The energy use (kwh) requirement is calculated in H96 and H97 by multiplying F96
by cells G96 and G97.
33 Direct Testimony of DRA Ch. 4 C.1.c,ii page 4-5, line 24.
307136107.3
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 207, Packet Page 227
7. Appropriate energy unit cost rates for each season (cells G35 and H35 in this case) are
used to calculate the energy cost in 196 and 197 by multiplying the total energy use
(H96 and H97) times the unit cost (G35 and H35).
8. Summer and winter subtotals for energy costs are added to calculate an annual energy
cost.
9. To further describe the conversion, the method for AFY — MGD conversion is
presented below.
Acre — Ft 325,851 gallons Year MG
x
Year Acre. — Ft x 365 Days x 1,000,000 Gallons
Per the above formula, AFY can be converted to MGD by dividing by 1120
( 325,851 )
[i.e.k.365 x 1,000,000)]. Similarly, the number of AF pumped in six months, can be
converted to MGD by dividing by 560 (i.e., one half of 1120).
Q34. Does this conclude your supplemental testimony?
A34. Yes, it does.
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 208, Packet Page 228
ATTACHMENT 1
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 209, Packet Page 229
March 4, 2013
PREPARED FOR:

PREPARED BY:
CALIFORNIA
AMERICAN WATER
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 210, Packet Page 230
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
MPWSP TEMPORARY SLANT TEST WELL
INTRODUCTION
This document describes the construction and operation of a proposed temporary Slant Test Well
(Project) and associated monitoring wells and appurtenances. The temporary test well facility is being
proposed to gather technical data related to feasibility of a subsurface intake system for a potential future
desalination project. The temporary test well is independent of any future permanent desalination facility.
In fact, as noted in Avoidance and Minimization Measures below (pages 14-15), the temporary slant test
well design precludes future permanent use due to lack of conveyance infrastructure. The temporary slant
test well data will be used, in part, to facilitate design and intake siting for the separately proposed
Monterey Peninsula Water Supply Project (MPWSP). The temporary slant test well does not include any
reverse osmosis (RO), treatment, brine discharge, or conveyance infrastructure.
The goals and objectives of the slant test well program are to:
• Obtain current, site-specific field data concerning geologic, hydrogeologic, and water quality
characteristics of the Sand Dunes Aquifer, Salinas Valley Aquitard, and 180-Foot Aquifer. This
information will then be used to finalize the number, capacity, location, and design criteria of the
MPWSP intake wells, and also to improve the precision of ground water modeling that is required
to determine the fraction of the extracted water that will come from inland sources.
• Operate the test well within the 5-month non-nesting season for the Snowy Plover to acquire
water quality data and predict the length of operation that will be required for the extracted water
to reach stable salinity. This information will be used to develop a start-up plan for the MPWSP
desalination plant. The test well will not be operated, nor will any data collection or maintenance
occur, during the snowy plover breeding season.
• Verify and refine information required to obtain permits for implementation of the MPWSP
intake wells.
• Verify and refine construction means and methods, schedule requirements, and minimization and
avoidance measures for implementation of the MPWSP intake wells.
• Install and test a subsurface diffuser system to determine if it is a feasible method for disposal of
development water and pump-to-waste water from the MPWSP intake wells.
The proposed test well location is shown on Figure 1, USGS Map, Figure 2, Test Well Vicinity II/Iap, and
Figure 3, Test Well Facilities Map. The slant test well site, shown in Figure 2, is on the beach
approximately one-half mile north of CEMEX's site entrance access road. The facilities are located on
CEMEX property (APN 203-011-019-000); however, the facilities seaward of the mean high tide line are
on State Lands. For the purposes of this application, the slant test well will be a temporary permitted
facility until March of 2016. The MPWSP is a separate, potential future project, and its intake wells will
be the subject of a separate permitting process. Conversion of the temporary slant test well to a
permanent well would require considerable additional information such as conveyance, pumps and
treatment, all of which would be addressed, if desired, as part of a separate CEQA and permitting process
for the potential future MPWSP. This proposed temporary slant test well includes a demobilization phase
following the initial test period. Demobilization would also occur in the non-breeding season.
March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 211, Packet Page 231
Pacific Ocean
Monterey Bay
TEST WELL SITE
ACCESS ROUTE
0 1000 2000 .
. imommeesI
FEET
Source: USGS 7.5-Minute Series: Marina Quadrangle
JN130770 FEB 2013
Ct.i .T1 rq
MONTEREY PENINSULAWATERSUPPLY PROJECT
TEMPORARY SLANT TEST WELL
U.S.G.S. Map
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Figure 1 MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 212, Packet Page 232
ise ornrnuns gr i srI ueE!orm . NA.
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MONTEREY PENINSULA WATER SUPPLY PROJECT
TEMPORARY SLANT TEST WELL
Vicinity Map

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JN130770 FEB 2013

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TEMPORARY SLANT TEST WELL
Facilities Map
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Figure 3
JN130770 FEB 2013
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MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
The proposed layout of the facilities at the beach is shown on Figure 4, Slant Test Well Construction
Plan. The siting area for the test well facilities relative to the swash zone, mean high tide and mean low
tide is shown in Figure 5, Slant Test Well Siting Area. The slant test well head will be buried beneath the
beach surface a minimum of 5 feet seaward of the mean high tide line and within the zone of wave run-up
between normal low and high tides known as the "swash zone." The eastern boundary of the sheet piling
will be a minimum of 5 feet seaward of the top of the swash zone, as determined in the field prior to
construction. The exact location of the test well facilities will be determined immediately prior to
construction, based on field conditions at that time, and in conformance with the minimum separations
mentioned above.
The slant test well program will be implemented in an initial Construction/Initial Testing Phase, and
which will possibly be followed by a second Confirmation Phase. The Construction/ Initial Testing Phase
will consist of preparing the site for wave protection, drilling monitoring wells, drilling and developing
the test slant well and performing short-term pumping tests within the 5-month non-nesting season (for
the snowy plover) from October 1, 2013 through February 28, 2014. The Construction Phase is discussed
in greater detail below.
The need for a Confirmation Phase will be determined based on results of the Construction/Initial Testing
Phase. If required, it would initiate on October 1, 2014 and continue through February 28, 2015. A
smaller footprint wave protection barrier would be installed during the Confirmation Phase to provide
protection for power generation and pumping equipment necessary to perform continuous pumping for 5
months. All equipment, pumps, sheet piling and protection barriers would be removed from the site prior
to February 28, 2015.
SITE ALTERNATIVES
Various alternative sites were considered for the temporary test well facilities, including two sites located
at the southern extent of the CEMEX property, one site at the extreme north boundary of the CEMEX
property, and one site located north of the CEMEX site entrance/facility area approximately 550 feet
north of the CEMEX sand extraction pond. Also, a site higher on the beach at the proposed location was
considered. However, these sites are less preferable based on the results of investigations and
discussions, including:
• Initial biological resource rec;
• Preliminary ground water modeling;
• Discussions with CEMEX concerning site acquisition, access and electrical power supply;
• Discussions with PG&E regarding electrical service;
• Discussions with City of Marina regarding Coastal Act permitting concerns;
• Discussions with Monterey Peninsula Regional Parks District regarding access; and
• Discussions with California Department of Fish and Game, Monterey Bay National Marine
Sanctuary, U.S. Fish and Wildlife Service, and Point Reyes Bird Observatory.
g e 1 5
March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 215, Packet Page 235
TOP OFSWASH
ZONE
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MONTEREY PENINSULAWATERSUPPLY PROJECT
TEMPORARY SLANT TEST WELL
Construction Plan

SCALE: 1"=25'
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JN130770 FEB 2013
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TEMPORARY SLANT TEST WELL

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Figure 5
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=Iv JN130770 FEB 2013
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MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AM E RICAN WATE R
FACILITIES
The slant well test facilities will include the slant well, submersible well pump, and well-head vault;
vertical monitoring wells; test water disposal facilities; temporary on-site electrical generation facilities;
and a temporary flow measurement/sampling equipment. Temporary sheet piling will be required in the
swash zone during construction. At the option of the construction contractor, a geo-bag wave protection
barrier (geotextile ecological bag) may be installed to protect the seaward face of the sheet piling. If used,
the temporary geo-bags will be filled with existing sand located near the test well area. The sand will be
released back to the well area once the test well construction is complete and the beach will be restored to
its natural condition. The temporary sheet piling will be removed from the test well area following the
construction phase and again following the Construction/Initial Testing Phase and again following the
Confirmation Phase.
Slant Test Well and Well-bead Facilities. The slant test well will be designed using similar materials,
size and construction methodology as the proposed intake wells for the MPWSP. Cross-sectional views
of the slant well and well-head facilities are shown in Figures 6 and 7. It should be noted that the
configuration and geology presented is preliminary. The actual well configuration will be determined
once the geology is confirmed during installation of the monitoring wells.
The slant test well will be drilled towards the ocean at an angle such that an 800 LF slant well will
proceed to the bottom of the 180-foot aquifer formation. The slant test well will be completed using up to
22-inch diameter casing and up to 12-inch diameter screen of "Super Duplex - Stainless Steel, a specialty
metal designed for use in seawater environments. Well screen will be installed starting at elevation 30
feet BMSL through both the Dune Sands and 180-foot Aquifers.
Figure 6
Cross Sectional View of Slant Test Well
P a e 8

March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 218, Packet Page 238
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AM E RI CAN WATER
absented Top of
Wash Zolse i1i1St2012
Wellhead Vasa
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Figure 7
Cross Sectional View of Well-head Facilities
As shown in Figure 7, the slant well head will be terminated at approximately 5 feet BMSL (10 feet
below grade) and located in a buried 5 foot by 10 foot rectangular vault.
Monitoring Wells. Two individual vertical monitoring wells will be drilled prior to drilling the slant test
well in order to provide confirmation of geologic conditions. The wells will also be used during initial
testing of the slant test well in order to assess the hydraulic characteristics of the aquifer. At the
completion of the construction and initial testing phase, the monitoring wells will be cut off and capped
approximately 6 feet below grade.
The wells will be 2-inch diameter wells, with one being drilled to a depth of approximately 200 feet
BMSL, and the other to approximately 400 feet BMSL. Boreholes for the monitoring wells will be
approximately 6-inches in diameter, and will be drilled using a sonic drilling method. The monitoring
wells will be constructed with a filter pack and surface seal in accordance with both County and State
well standards for monitoring wells.
Electrical Power Supply. Electrical power for construction and pumping operations will be provided by
on-site temporary diesel generators, fully contained within the construction footprint in a manner
acceptable to applicable regulatory agencies. Therefore, no external electrical service to the site will be
required for the slant test well.
Test Water Disposal Facilities. Water pumped from the test well will be discharged to a test water
disposal system at the test well site (a "buried diffuser"). The test water disposal system will be a
subsurface infiltration system comprised of approximately 100 LF of 16-inch diameter well screen in a
gravel-packed 24-inch square wire-mesh wrapped box, buried approximately 4 feet below the (sand)
surface (see Figure 8). The Regional Water Quality Control Board (RWQCB) has been consulted
regarding permitting for the test water pumped from the test well during development and testing.
P a g a
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March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 219, Packet Page 239
J.
r sIi s11.•
`,/. s4 ; "1
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN \WATER
Figure 8
Subsurface Diffuser System
ACCESS
Access to the well facility during the Construction/Initial Testing Phase and the Confirmation Phase (5-
month periods for both during the non-testing season) will be obtained by three methods:
1) vehicles transporting personnel and some of the construction equipment and construction
materials would travel to and from the site by an existing, established route through the CEMEX
site, and then along the shoreline below the below the mean hi2:h tide, as shown in Figures 1 and
2 (equipment would be "walked" down the beach accompanied by field aides to keep the
equipment as low on the beach as possible, to ensure all equipment tracks are washed away);
2) In an effort to reduce trips through the CEMEX site, small boat access may also be used to ferry
light equipment, and personnel for small maintenance and monitoring during the Testing and
Confirmation Phase; and
3) barges would be used to deliver some construction equipment and some of the construction
materials directly to the site (such as sheet piling). This anticipated to only require 1 to 2 barges
at construction and 1 to 2 barges for demobilization. All appropriate notifications and approvals
will be obtained for the barge deliveries, which are necessary to reduce heavy
equipment/materials delivery along the beach, in response to input from the regulatory agency
consultation process.
CONSTRUCTION
The slant test well would be constructed within the area of the beach that is normally washed by waves
during a normal daily tidal cycle ("swash zone"). All construction activities would be performed within
P age 1 10 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 220, Packet Page 240
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
the 5-month snowy plover non-nesting season, including placement and removal of the protection barrier
and the sheet piling.
The anticipated sequence of construction for the Construction/Initial Testing Phase is as follows:
• Mobilize construction crane to site using shoreline access route;
• Install temporary wave protection barrier and sheet piling;
• Mobilize monitoring well drill rig using shoreline access route;
• Drill and develop monitoring wells;
• Well development water is placed in Baker tank and transported offsite;
• Demobilize monitoring well drill rig using shoreline access route;
• Excavate and place wellhead vault structure (pre-cast);
• Install test water discharge piping, subsurface diffuser and temporary sedimentation tanks;
• Mobilize slant well drill rig using shoreline access route;
• Drill and install slant test well (through openings provided in well head vault);
• Demobilize slant well drill rig and temporary sedimentation tanks using shoreline access route;
• Develop slant well and conduct initial testing, aquifer testing, and short term pumping program;
• Remove well pump and place temporary caps on diffuser pipe connection
• Remove upper section of well casing to terminate in wellhead vault.
• Place covers and backfill above the well head vault:
• Cut and cap monitoring wells;
• Remove sheet piling and temporary wave protection barrier;
• Demobilize construction crane from site using shoreline access route.
Figure 9
Geotextile Eco-Bag Wave Protection
The anticipated sequence of activities for the Confirmation Phase (if required) is as follows:
• Mobilize construction crane to site using shoreline access route;
• Install temporary wave protection barrier and sheet piling;
• Demobilize construction crane from site using shoreline access route.
• Excavate and locate wellhead vault structure and monitoring wells;
• Install slant well pump and conduct long term pumping of slant well;
• Remove well pump and place temporary caps on diffuser pipe connection;
• Place covers and backfill above the well head vault:
Page I 11 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 221, Packet Page 241
fl.wI. Area
nigo seat-to
tido Land. Comil
tAtisitin 5011Leaso
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
• Mobilize construction crane to site using shoreline access route;
• Remove sheet piling and protection barrier;
• Demobilize construction crane from site using shoreline access route.
Figures 10, 11 and 12 are photographs of the drilling operation for a slant test well that was recently
constructed on Doheny State Beach in Dana Point, California. Figure 13 shows the project site during
the operational phase, after construction demolition. (Note: This project did not require sheet piling due to
its location high up on the beach, and existing breakwater protection.)
Figure 10
Slant Test Well Drilling Operation at Doheny State Beach, Dana Point, California
(Source: Geoscience Support Services, Inc.)
Figure 11
Slant Test Well Site Plan at Doheny State Beach, Dana Point, California
(Source: Geoscience Support Services, Inc.)
Page I 12 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 222, Packet Page 242
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
Figure 12
Slant Test Well Drilling Operation at Doheny State Beach, Dana Point, California
(Source: Geoscience Support Services, Inc.)
Figure 13
Slant Test Well Site - Post Construction Operational Phase
Doheny State Beach, Dana Point, California
(Source: Geoscience Support Services, Inc.)
I 13 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 223, Packet Page 243
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AMERICAN WATER
OPERATION AND SCHEDULE
As described above the Slant Test Well would be implemented in two phases. During the
Construction/Initial testing Phase, the slant test well will be constructed, developed and pumped within
the 5-month non-nesting season for the Snowy Plover fromOctober 1, 2013 to February 28, 2014. The
construction equipment will be mobilized on October 1 assuming all permits are secured. The site
preparation and drilling and development of the slant test well will be performed around the clock. Once
the well is developed, initial and short-termtesting will be performed until February. All construction
equipment, pumps, protection equipment will be removed fromsite and the site will be returned to
original conditions by February 28. The test well will not be operated fromMarch through September.
The Confirmation Phase, if required, would be initiated in October 2014. A construction crane would be
mobilized to install a smaller wave protection system. Once the wave protection is in place, a temporary
diesel generator, along with supporting equipment, would be mobilized to the site for pumping
operations. All wave protection and generator and pumping equipment would be removed fromthe site by
February 28, 2015.
ENVIRONMENTAL ISSUES
Snowy Plover Protection. The test well site will be located entirely within the swash zone adjacent to a
beach that could potentially be used by snowy plovers for nesting, during March through
September. During a biological survey of May 16, 2012, neighboring sites were chained and posted for
snowy plover nests. Slant test well construction and short termpumping is proposed to begin in October
2013, and will be completed during the 5 month non-nesting season. During this construction/initial
testing phase, an appropriately trained biologist will be designated to monitor equipment access and
construction activities, in order to avoid disturbance to potential neighboring snowy plover habitat.
Management of Drill Cuttings. Cuttings generated during the drilling process will be stored within the
sheet piled area. The drill cuttings will be allowed to drain, with water percolating to the ground.
Drainage for the drill cuttings will be managed such that all water percolates to the ground within the
sheet-piled construction area. Dewatered drill cuttings (estimated volume of less than 100 cubic yards)
will be incorporated in backfill operations within the sheet-piled area.
Emissions. Air quality permits may be required for the emissions fromdiesel-fueled equipment that is
necessary for construction operations.
Stormwater Pollution Prevention Plan. It is anticipated that no SWPP will be required because the
disturbed area for the project is less than 1 acre, and is entirely within the swash zone.
AVOIDANCE AND MINIMIZATION MEASURES (PROJECT DESIGN FEATURES)
The following summarizes the avoidance measures proposed by the project, in order to address the
environmental issues outlined above:
Project Siting. At the request of regulatory agencies, the test well site has been shifted seaward to within
the swash zone, to minimize or avoid disruption of the snowy plover wrack and upland beach habitat.
The construction zone will be at least five feet below the upper limits of the swash zone as determined in
the field. In addition, the construction and operation has been modified to eliminate the need for an
I 14 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 224, Packet Page 244
MPWSP Temporary Slant Test Well
PROJECT DESCRIPTION
CALIFORNIA
AM E RICAN WKIT R
electrical supply and water sampling conduit on the east side of the dunes, thereby avoiding all
construction impacts in the agricultural and dune area (water sampling will only occur during the five-
month construction phase, and potentially during the following non-breeding season "Confirmation
Phase"). No sampling, construction traffic, or facility access or maintenance would occur during the
snowy plover nesting season.
Construction Limits. CAW will restrict construction activities to the proposed construction area and
access route, in order to minimize access impacts to the upland beach and snowy plover wrack area. No
construction equipment, materials, or activity will occur outside the specified beach areas and beach
access route identified on Figures 1, 2, and 3. Delivery of materials and equipment will be along a
carefully monitored path below the swash zone, with biological monitors present. No construction
equipment, materials, or activity will be placed on the sandy beach outside of the immediate construction
zone. The property owner would be consulted, prior to commencement of construction, in order to
schedule construction activities during non-peak hours and provide advance notice of construction
activities.
Construction Lighting. The construction area will be isolated fromover-wintering snowy plover by the
enclosed construction zone (sheet pile perimeter). This will also attenuate noise levels. Night time
lighting will be such that is directed toward the construction activity, sufficient for safety and security
only.
Timing of Construction and Pumping Activities (Biological Resources). To avoid adverse impacts on
the snowy plover, construction activities and pumping activities will be limited to the plover's non-
nesting season (October 1st through February 28th).
Biological Education and Monitoring. Prior to initiation of access or construction activities, a
designated biologist will conduct an educational session with all construction personnel. An appropriately
trained biologist will be designated to monitor equipment access in order to avoid disturbance to sensitive
habitat.
Beach Erosion. The well head will be buried below the beach surface in a well head vault at
approximately mean sea level, and covered with 3 to 6 feet of native beach sand. It is expected that this
will protect this structure frombeing exposed or directly impacted by wave action during the period
between the Construction/Initial Testing Phase and the Confirmation Phase.
The subsurface diffuser will be placed with a minimumof 4 feet of beach sand cover material. If
required, a flexible cable and concrete block mesh will be placed and buried directly over the subsurface
diffuser to minimize possibility of wave damage.
If the buried well head vault becomes exposed due to erosion, shifting sand, or other factors, the exposure
will be remedied by excavating the well head vault and moving it deeper. If the diffuser becomes
exposed, it will be excavated and either buried deeper (if it is still being used for testing), or removed (if
testing has been completed). Unless otherwise permitted or ordered, construction of the remedy will be
scheduled during the non-nesting season.
I 15 March 4, 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 225, Packet Page 245
ATTACHMENT 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 226, Packet Page 246
Tetra-pod
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Technical Memorandum: Littoral Sand Transport and Equilibrium Beach Profile
Change at Updated Monterey Peninsula Water Supply Project Slant Test Well Site
Submitted by:
Scott A. Jenkins, Ph. D.
Dr. Scott A. Jenkins Consulting AND:
14765 Kalapana Street,
Poway, CA 92064
Submitted to:
Paul Findley
RBF Consulting
9755 Clairemont Mesa Boulevard
San Diego, CA 92124-1324
David W, Skelly MS, PE
Skelly Engineering
3047 Via de Caballo
Encinitas, CA 92024
Revised: 18 February 2013
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 227, Packet Page 247
2
ABSTRACT:
This technical memorandumevaluates littoral sand transport (littoral drift) and
beach profile change in the neighborhood of slant intake wells proposed as part of the
Monterey Peninsula Water Supply Project (MPWSP). Construction of the intake wells in
the swash zone will require a temporary barrier and sheet piling forming a box coffer
damaround the well heads and associated hydraulic conveyance to protect equipment and
personnel during construction. The seaward face of the sheet pile coffer damwill be
protected fromwave impact and scour by a temporary detached breakwater constructed
frompre-cast concrete tetrapods or sand-filled geo-bags or geo-tubes. These construction
techniques have the advantage of ease in placement and recovery. Conventional rubble
mound breakwater construction with quarry stone is prone to scour and burial on sandy
beaches, and is extremely difficult to remove once constructed, as each stone must dug
out with a clamshell type of apparatus. The tetrapod or sand-filled geo-bags/geo-tubes on
the other hand are resistant to wave scour and burial. Tetrapods have a steel lift ring and
geo-bags are made of geo-textile fabrics which render both easy to place and recover with
conventional rigging and mobile crane operations. These features also reduce placement
and recovery schedules, which is an important attribute since construction will need to be
accomplished within the five-month (October through February) non-nesting season for
the Snowy Plover, and the temporary barrier and sheet piling must be removed prior to
March 1.
The beach and bluff dunes at the MPWSP test well site derive their sand supply
fromproximity to the Salinas River, only 2.2 kmup-coast (to the north) fromthe
MPWSP test well site. The net littoral drift of sand in this quadrant of Monterey Bay is
southward, fromthe Salinas River towards the MPWSP test well site and the CEMEX
plant further to the south. The southward direction of net littoral drift insures that the
beach and dune bluff systemat the MPWSP test well site and CEMEX plant is
continually nourished by the sediment yield of the Salinas River, the most sediment
productive river in California south of the Sacramento River delta. The decisive question
to be addressed in this technical memorandumis whether or not the coffer damand
detached breakwater around the test well site will interrupt or prevent this southward
directed net littoral drift, and thereby create a beach sand supply deficit in the
neighborhood of the CEMEX sand mining operations. We utilized the Coastal Evolution
Model (Jenkins and Wasyl, 2005) to make preliminary quantitative assessments of net
littoral drift of sand and equilibriumbeach profile change at the new MPWSP test well
site; and to make comparisons with similar calculations made for the former MPWSP
well site in Jenkins (2012). The algorithms of this model have been published in the peer
reviewed literature, with the equilibriumbeach profile algorithms appearing in Jenkins
and Inman (2006), and the divergence of drift and shoreline evolution algorithms
appearing in Jenkins et al 2007.
The model simulations show a positive divergence of drift with beach accretion
along the reach of shoreline fromabout 2.5 kmnorth of the Salinas River and extending
south for about 4 kilometers beyond the MPWSP test well site in the neighborhood of the
CEMEX sand mining operation. This calculation is consistent with the wide beaches and
bluff dunes found in the neighborhood of the Salinas River and test well site in aerial
photos. Wind-blown losses of beach sand have been neglected in this simulation, but the
positive divergence of drift, (that averages 15 m3 /day at the MPWSP test well site and
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 228, Packet Page 248
3
about 5 m3 /day at the CEMEX sand mining plant) provide a continual source of sand at
both sites to sustain adequate beach sand volumes; so much so that wind effects have
formed sand dunes in front of the bluff formations, as evident in aerial photos. Beaches
with long-termaverages of positive divergence of drift are not prone to erosion. The
positive divergence of drift at this new MPWSP test well site is about double the positive
divergence of drift at the former MPWSP test well site evaluated in Jenkins (2012) that
was located about 2.5 kmfurther down drift to the south; indicating the new well site is a
better location with respect to beach stability. Furthermore, there is no discernible
difference between the littoral drift and divergence of drift at the CEMEX plant in the
present calculations (that include the effects of the sheet pile box coffer damand tetrapod
detached breakwater around the new MPWSP test well site), versus similar calculation in
Jenkins (2012) for the former MPWSP test well that did not incorporate any shore
protection structures.
The envelope of variability of the equilibriumbeach profiles calculated by the
model, (as applied to the new MPWSP well site with coffer damand detached
breakwater), shows that over the long term, beach profiles around the well site can cause
sand levels to vary vertically by as much as 6 ft., (generally accreting 2 ft. above present
grade, and eroding 4 ft. below present grade). The average significant wave height in the
1984-2008 period of record was H = 2.1 m, the average wave period was I T = 11.3 sec,
while the average direction of the waves in was -- ot- = 286 degrees true. These extreme
sand level variations do not allow wave run-up to overtop the sheet pile coffer damor
tetrapod detached breakwater, nor do the extreme sand level variations undercut the
foundation of either shore protection structure. A critical feature in all of these beach
profiles is the formation of an equilibriumsand bar immediately seaward of the tetrapod
detached breakwater. Bar formation seaward of hardened shore protection devices are
well known to coastal engineering, and are a consequence of the increase in the beach
reflection coefficient caused by the steep seaward facing slopes of these structures. In the
site-specific case of the new MPWSP well site, the shore protection structures (coffer
damand detached breakwater) are situated high enough upslope on the bar-bermportion
of the beach profile that the reflection-induced sand bar remains inside the surf zone
(landward of the wave break point). Here, the bar function provides a by-passing pathway
for the long shore transport of sand (littoral drift). The preponderance of the littoral drift
moves inside the surf zone, where it will flow around the coffer damand detached
breakwater structures following a pathway provided by the by-passing bar. In essence,
the by-passing bar causes the local bathymetry to develop a seaward bulge. This seaward
bulge in the local bathymetry causes the surf zone to likewise develop a seaward bulge;
and where the surf zone goes, the littoral drift follows. Consequently the shore protection
structures of the new MPWSP well site will not intercept or cut-off the littoral drift in the
manner of a shoreline normal jetty structure; and will not diminish the longshore
transport rates of sand in the littoral drift that reaches the CEMEX sand mining plant.
1) Introduction:
This technical memorandumevaluates littoral sand transport (littoral drift) and
beach profile change in the neighborhood of Slant Test Wells (STW) proposed as part of
the Monterey Peninsula Water Supply Project (MPWSP). These wells are a component of
the proposed MPWSP northern project facilities that will ultimately provide the
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 229, Packet Page 249
,
4
Figure 1: Farfield location of MPWSP Slant Test Well Alternative Site Locations in
Monterey Bay.
feedwater intake systemto the desalination plant (6.4 MGD or 9.6 MGD). Figurel shows
the location of the well sites in far field of Monterey Bay, while Figure 2 shows the
near field configuration of feedwater intake wells, feedwater intake pump station, and
feedwater intake pipelines in the MPWSP. Feedwater for the MPWSP desalination plant
would be extracted fromsubsurface slant wells that would draw seawater frombeneath
the shoreline. A slant well is a well that is drilled at an angle using modified vertical well
construction methods. This allows construction of wells that extract water fromas close
to the coastline as possible, in order to extract water with higher salinity than can be
obtained with conventional vertical wells. Angled drilling is beneficial because it results
in a substantially increased screen length in the targeted water-bearing formations.
For the 9.6 MGD desalination option, the total well capacity required is
approximately 23 MGD to meet the feedwater requirement for a 9.6 MGD desalination
plant operating at an overall recovery of 42 percent. Nine wells operating at 1,800 gpm
can meet this requirement. For the 6.4 MGD desalination option, the total well capacity
required is approximately 15 MGD which can be met by seven wells operating at 1,500
gpmper well.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 230, Packet Page 250
5
n:417,I1 Wa'e upv F jert
Intake Facilities
Figure 2
The preferred site (APN Number: 203 011 019 000) for construction of the slant
wells is adjacent to a 376-acre parcel of land owned by the CEMEX corporation located
due west of the proposed desal plant site and west of Highway 1. This property borders
the Pacific Ocean and includes disturbed and undisturbed areas and approximately 7,000
feet of ocean shoreline. The wells would be constructed in two clusters along a 2000-foot
stretch of this shoreline, at two of the three candidate cluster locations shown on Figure 2
and Figure 3 Most, if not all, of the facilities in the well clusters will actually be
constructed on land owned by the State of California, under the authority of the
California State Lands Commission.
One of the clusters would be constructed near the test well site, which is being
separately permitted as a test facility, and the expectation is that the test well facility
would be connected to this southern cluster, allowing the test well to be converted to a
permanent facility. Four wells would be constructed at each cluster for the 9.6 MGD
desalination option and three wells would be constructed at each cluster for the 5.4 MGD
option. A preliminary layout and profile view of the well cluster is shown on Figures 4
and 5. Each slant well would be drilled at a 22 degree angle fromhorizontal to the bottom
of the surface aquifer, which is referred to as the Sand Dunes Aquifer (SDA). In the
proposed locations, the length of the wells is expected to range from530 LF to 630 LF,
measured fromground surface, and the length of the well screens is expected to range
from370 LF to 470 LF. The wells will be designed as gravity wells such that they will
not require submersible well pumps or electrical power.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 231, Packet Page 251
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 232, Packet Page 252
7
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MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 233, Packet Page 253
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In order to protect the wellheads fromwave damage, to eliminate any visual
profile after construction, and to eliminate impacts on Snowy Plover nesting habitat, the
wellheads will be completely buried below the beach surface in the area known as the
"swash zone", which is the portion of the beach that lies within the run-up of waves at
normal high tide. In order to eliminate any possibility that the wellheads or any
associated structures will be exposed by the combined effects of coastal erosion and sea
level rise, they will be capped at or below mean sea level.
Construction of the intake wells in the swash zone will require a temporary barrier
and sheet piling forming a box coffer damaround the well heads and associated hydraulic
conveyance to protect equipment and personnel during construction (Figures 4 and 5).
Sheet pile structures have been used successfully for shore protection for over a century.
A properly designed sheet pile coffer damwill provide adequate protection for the intake
well cluster and construction area during the construction phase. The sheet pile
specification will be determined based upon the expected scour level on the beach during
the construction phase and the anticipated grade elevation on the landward site of the
pile. Based upon our experience with similar sheet pile shore protection projects on high
wave energy sand beaches a reasonable preliminary design would be a "Z" shaped pile
with a length of about 50 feet and a section modulus of about 33 in 3 /ft. This size sheet
should be capable of withstanding the construction phase design wave conditions and
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 234, Packet Page 254
9
scour conditions. The height of the sheet above sea level will be determined such that the
potential for wave overtopping is not significant. It should be noted that the sheets will
deflect when loaded by wave slam. However, deflection of several inches will not impact
the construction site behind the wall.
The seaward face of the sheet pile coffer damwill be protected fromwave impact
and scour by a temporary detached breakwater constructed frompre-cast concrete
tetrapods (Figures 6a & 6b) or alternatively with sand-filled geo-bags or geo-tubes
constructed of geotextile fabric (Figure 7). In addition to providing toe-protection to the
sheet pile coffer dams, regulatory agencies have expressed concerns over the reflective
nature of a vertical wall and the resulting potential for impacts to the alongshore
movement of sand as the wave energy is redirected offshore. The use of either the
tetrapod toe projection or a geo-bag/geo-tube toe protection will reduce the reflective
nature of the vertical walls of the coffer dams and therefore reduce the potential of impact
to sediment transport.
The tetrapod construction technique has the advantage of ease in placement and
recovery. Conventional rubble mound breakwater construction with quarry stone is prone
to scour and burial on sandy beaches, and is extremely difficult to remove once
constructed, as each stone must dug out with a clamshell type of apparatus. The tetrapod
on the other hand is resistant to wave scour and burial, and each tetrapod has a steel lift
ring (Figure 6b) that renders it easy to place and recover with conventional rigging and
mobile crane operations. This feature also reduces placement and recovery schedules,
which is an important attribute since construction will need to be accomplished within the
five-month (October through February) non-nesting season for the Snowy Plover, and the
temporary barrier and sheet piling must be removed prior to March l .
Geo-tube/geo-bag (geo-containment) technology has been used as an integral
component in the design and construction of a variety of marine and hydraulic
engineering structures such as breakwaters, levies, and marine spoil-containment
structures. For more than 40 years, this technology has protected shorelines, rebuilt
beaches, and reclaimed land fromthe sea. Geo-tube/geo-bag containment technology is a
proven, cost-effective method for a variety of shoreline protection and marine
construction projects. This technology has been used to produce sand dune cores;
wetlands and other habitats; jetties, dikes, and groins; and underwater structures -- and to
even raise brand new islands fromunder water.
Geo-tubes and geo-bags are cost-effective, durable, easy to install, and highly
flexible. The technology works well for both short-termand long-termsolutions.
Geotube structures are fabricated froma high-strength, specially engineered, woven
textile with special high-strength seaming techniques to resist pressures during pumping
operations. No special equipment is required to install and the tube is easily removed
when it is no longer needed.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 235, Packet Page 255
10
Figure 6a: Concrete T etrapods used in breakwater construction and shore protection as
an alternative to convention rubble mound construction techniques.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 236, Packet Page 256
11
Figure 6b: Concrete T etrapods prior to placement in breakwater construction. Note the
steel lift rings which facilitate placement and removal by convential rigging and mobile
crane operations.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 237, Packet Page 257
Figure 7: Sand-filled geo-tube (geo-bag) for shore protection fromwave run-up.
12
2) Statement of the Problem:
FromFigure 8 it is apparent that the beach and bluff dunes at the MPWSP test
well site derive its sand supply fromproximity to the Salinas River, only 2.2 kmupcoast
(to the north) fromthe MPWSP test well site (Jenkins, 2012). By zooming in on Figure 8,
a very wide beach is found in the immediate neighborhood of the Salinas River. This
beach thins rapidly to the north of the river; but only gradually narrows to the south of the
river, and merges with the bluff dune systemat the MPWSP test well site. This
north/south asymmetry in beach width indicates that the net littoral drift of sand in this
quadrant of Monterey Bay is southward, fromthe Salinas River towards the MPWSP test
well site and the CEMEX plant further to the south. The southward direction of net
littoral drift insures that the beach and dune bluff systemat the MPWSP test well site and
CEMEX plant is continually nourished by the sediment yield of the Salinas River, the
most sediment productive river in California south of the Sacramento River delta (Inman
and Jenkins, 1999). With this continual nourishment, the test well site is insulated from
chronic, progressive beach and bluff erosion, and is insured a resident sand supply in
excess of the critical mass volume requirements. The decisive question to be
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 238, Packet Page 258
Data CSUM11111
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Figure 8: Farfield view of the beach and dune systemat the MPWSP test well site the net
littoral drift that feeds the sand mining operation of the CEMEX fromthe sand source of
the Salinas River..
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 239, Packet Page 259
14
addressed in this technical memorandumis whether or not the coffer damand detached
breakwater around the test well site will interrupt or prevent this southward directed net
littoral drill, and thereby create a beach sand supply deficit in the neighborhood of the
CEMEX sand mining operations. This issue will be quantified in following sections.
3) Technical Approach:
As detailed in Jenkins (2012), long termbeach and shoreline monitoring data in
Monterey, and at the test well site in particular, suffer froma number of shortcomings,
principally aliasing. Therefore, we take an analytic approach to providing preliminary
erosion analysis at the project site. We will utilize the Coastal Evolution Model
commissioned by the Kavli Foundation to make preliminary quantitative assessments of
net littoral drift of sand equilibriumbeach profile change at MPWSP test well site (Figure
3)
The Coastal Evolution Model (CEM) is a process-based numerical model. It
consists of a Littoral Cell Model (LCM) and a Bedrock Cutting Model (BCM), both
coupled and operating in varying time and space domains (Figure 9) determined by sea
level and the coastal boundaries of the littoral cell at that particular sea level and time. At
any given sea level and time, the LCM accounts for erosion of uplands by rainfall and the
transport of mobile sediment along the coast by waves and currents, while the BCM
accounts for the cutting of bedrock by wave action in the absence of a sedimentary cover.
In both the LCM and BCM, the coastline of the littoral cell is divided into a series
of coupled control cells (Figure 10). Each control cell is a small coastal unit of uniform
geometry where a balance is obtained between shoreline change and the inputs and
outputs of mass and momentum. The model sequentially integrates over the control cells
in a down-drift direction so that the shoreline response of each cell is dependent on the
exchanges of mass and momentumbetween cells, giving continuity of coastal formin the
down-drift direction. Although the overall computational domain of the littoral cell
remains constant throughout time, there is a different coastline position at each time step
in sea level. For each coastline position there exists a similar set of coupled control cells
that respond to forcing by waves and current. Time and space scales used for wave
forcing and shoreline response (applied at 6 hour intervals) and sea level change (applied
annually) are very different. To accommodate these different scales, the model uses
multiple nesting in space and time, providing small length scales inside large, and short
time scales repeated inside of long time scales.
The LCM (Figure 9, upper) has been used to predict the change in shoreline width
and beach profile resulting from the longshore transport of sand by wave action where
sand source is fromriver runoff or fromtidal exchange at inlets (e.g., Jenkins and Inman,
1999). More recently it has been used to compute the sand level change (farfield effect)
in the prediction of mine burial (Jenkins and Inman, 2002; Inman and Jenkins, 2002).
Time-splitting logic and feedback loops for climate cycles and sea level change were
added to the LCM together with long run time capability to give a numerically stable
couple with the BCM.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 240, Packet Page 260
Tide
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Sea Level
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Wave
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Figure 9: Architecture of the Coastal Evolution Model consisting of the Littoral Cell
Model (above) and the Bedrock Cutting Model (below). Modules (shaded) are formed of
coupled primitive process models. (fromJenkins and Wasly, 2005).
15
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 241, Packet Page 261
a) Accretion / Erosion Wave
accretion
(sand delta)
16
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Figure 10 Computational approach for modeling shoreline change after Jenkins, et. al.,
(2007).
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 242, Packet Page 262
17
In the LCM, the variation of the sediment cover with time is modeled by time-stepped
solutions to the sediment continuity equation (otherwise known as the sediment budget)
applied to the boundary conditions of the coupled control cell mesh diagramed
schematically in Figure 3. The sediment continuity equation is written (Jenkins, et al,
2007):
aq a (g ag ` aq
v , + J(t) — R(I )
(1 )
at ayay) ay
Where q is the sediment volume per unit length of shoreline (m3 /m), g is the mass
diffusivity, V , is the longshore current, JO is the flux of new sediment into the littoral
cell fromwatrersheds and R(t) is the flux of sediment lost to sinks , typically submarine
canyons, lagoons, spits, harbors or windblown losses. The first termin (1) is the surf
diffusion while the second is divergence of drift. For any given control cell in Figure 10,
(1) may be discretized in terms of the rate of change of beach volume, V , in time t ,
given by:
dV
dt
„ ,
= "0+ q 1 , 1 + q — q L2 (2)
Sediment is supplied to the control cell by the sediment yield fromthe rivers, J(t), by
the influx littoral drift fromup-coast sources, qu and by new sediment that recharges the
systemCIRE as a consequence of bluff erosion within the control cell. Sediment is lost
fromthe control cell due to the action of wave erosion and expelled fromthe control cell
by exiting littoral drift, qL2. Here fluxes into the control cell (J(t) and qu ) are positive
and fluxes out of the control cell (qRE and qL2) are negative. The beach sand volume
change, dV I dt, is related to the change in shoreline position, dXI dt, according to:
where
dV dX
= Z • 1
dt c l t
Z=4+ 1 1 ,
(3)
(4)
Here, Z is the height of the shoreline flux surface equal to the sumof the closure
depth below mean sea level, h c , and the height of the bermcrest, Z 1 , above mean sea
level; and 1 is the length of the shoreline flux surface. Hence, beaches and the local
shoreline position remain stable if a mass balance is maintained such that the flux terms
on the right-hand side of equation (2) sumto zero; otherwise the shoreline will move
during any time step increment as:
r
a aq
Ax(t) =
Ay(Z 1 + hc )
f
ay\
E
ay)
V
aq
+ J(t) dt
ay
( 5)
where s is the mass diffusivity, V is the longshore drift , J is the flux of sediment from
river sources, Ayis the alongshore length of the control cell, and Z1 is the maximumrun-
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up elevation fromHunt's Formula. River sediment yield, J, is calculated from
streamflow, Q, based on the power law formulation of that river's sediment rating curve
after Inman and Jenkins, (1999), or
= 7 Qc o

(6)
where 21 , 0) are empirically derived power law coefficients of the sediment rating curve
frombest fit (regression) analysis (Inman and Jenkins,1999). When river floods produce
large episodic increases in J, a river delta is initially formed. Over time the delta will
widen and reduce in amplitude under the influence of surf diffusion and advect down-
coast with the longshore drift, forming an accretion erosion wave (Figure 16a). The local
sediment volume varies in response to the net change of the volume fluxes, q , between
any given control cell and its neighbors, referred to as divergence of drift = qin - gout , see
Figure 16b and 16c. The mass balance of the control cell responds to a non-zero
divergence of drift with a compensating shift, Ax , in the position of the equilibrium
profile (Jenkins and Inman, 2006). This is equivalent to a net change in the beach entropy
of the equilibriumstate . The divergence of drift is given by the continuity equation of
volume flux, requiring that dq /dt is the net of advective and diffusive fluxes of sediment
plus the influx of new sediment, J. The rate of change of volume flux through the control
cell causes the equilibriumprofile to shift in time according to (5).
The BCM (Figure 9, lower) is a new effort to model the erosion of country rock
by wave action during transgressions, regressions, and stillstands in sea level (Jenkins
and Wasyl, 2005). Because bedrock cutting requires the near absence of a sediment
cover, the boundary conditions for cutting are determined by the coupled mobile
sediment model, LCM. When LCM indicates that the sediment cover is absent in a given
area, then BCM kicks in and begins cutting. BCM cutting is powered by the wave
climate input to LCM but applied only to areas where mobile sediment is absent.
Bedrock cutting involves the action of wave energy flux E Cn to perform the work
required to abrade and notch the country rock. Both abrasion and notching mechanisms
are computed by the newly developed wave-cutting algorithms. These algorithms use a
general solution for the recession R (in meters) of the shelf and sea cliff. The recession
rate dRI dt is a function of the incident wave energy flux,
dR p
= fe E Cn
(7 )
dt *
where p is the density of seawater; p s is the density of the bedrock, and fe is a function
that varies from0 to 1 and is referred to as the erodibility. The units of the erodibility are
the reciprocal of the wave force per unit crest length (m/N). The erodibility is given
separate functional dependence on wave height for the platform abrasion and wave
notching of the sea cliff. For abrasion, the erodibility varies with the local shoaling wave
height H(, ) as
f
e
= K0, H
(x)
1 .63 (abrasion)

(8)
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where Ou is the bedrock failu re shape fu nction and K „ is an empirical constant.
Consequ ently, recession by abrasion is a maximu m at the wave breakpoint (at a depth of
abou t 5/4 the breaking wave height, rib) and decreases in both the seaward and shoreward
directions. In contrast, the erodibility of the notching mechanism is a force-yield relation
associated with the shock pressu re of the bore striking the sea cliff (Bagnold, 1939;
Trenhaile, 2002). The shock pressu re is proportional to the ru nu p velocity squ ared,
which is limited by wave ru nu p elevation. Wave pressu re solu tions (Havelock, 1940)
give
fe =K O. qr (notching)
n
( 9 )
where K „ is an empirical constant and the ru nu p elevation Or is dependent on the tidal
level 00 and the breaking wave height by Hu nt's formu la,
1 7 r=+Hb(10)
Here T is an empirical constant from Hu nt's formu la (Hunt, 1959).
3.1) Model Initialization, Bathymetry: Bathymetry provides a controlling
influ ence on all of the coastal processes that affect dispersion and dilu tion. The
bathymetry consists of two parts: 1) a stationary component in the offshore where depths
are rou ghly invariant over time; and 2) a non-stationary component in the nearshore
where depth variations do occu r over time. The stationary bathymetry generally prevails
at depths that exceed closu re depth, which is the depth at which net on/offshore sediment
transport vanishes. Closu re depth is typically -12 m to -15 m MSL in the Monterey
Littoral Cell, [Inman et al. 1993]. The stationary bathymetry was derived from the
National Geophysical Data Center GEODAS digital database. Gridding is by latitu de
and longitu de with a 3 x 3 arc second grid cell resolu tion in a 1201 X 1201 farfield grid
yielding an xy-compu tational domain of 108.09 km x 86.5 km. The farfield grid mesh is
indicated by the black lines in Figu re 1.2. A nearfield grid was constru cted with a 1 x 1
arc second grid cell resolu tion in a 601 X 601 nu merical array yielding an xy-
compu tational domain of 15.45 km x 18.57 km. The farfield grid (Figu re I I) compu tes
the effects of regional scale refraction and circu lation du e to the shallow banks of the
continental margin. The nearfield grid is nested inside the farfield grid and is u sed to
calcu late the brine discharge and storm water dispersion in the vicinity of the intake.
For the non-stationary bathymetry data inshore of closu re depth (less than -15 m
MSL) nearshore and beach su rveys were condu cted by the US Army Corps of Engineers
in 1985, 1990, and 1996, and GIS formatted by USGS (2006, 2007. These nearshore
beach su rveys were u sed to u pdate the GEODAS database for contemporary nearshore
and shoreline changes.
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37.00
36.90
L
a
t
i
t
u
d
e

36.80
36.70
36.60
122.25 122.15 122.05 121.95
Longit ude
Figu re II: Farfield bathymetry for MPWSP shoreline change and littoral drift
simu lations. Depth contou rs in meters, MSL. (data from GEODAS, 2008).
3.2) Model Initialization, Wave Forcing: The availability of wave data in the
Monterey Bay and Central California region limited the period of record for this long
term model analysis to 1983-2008. Waves have been rou tinely monitored at several local
and regional locations by the Coastal Data information Program, (CDIP, 2008). These
data are su pplemented by ocean observations with Datawell bu oys by the National Data
Bu oy Center (NDBC). The nearest CD1P and NDBC directional wave monitoring sites
20
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21
are:
a) CDIP, Harvest, California
Station ID: 071
Location: 34.455666 N; -120.783333 W
Water Depth: 549 m
b) CDIP, Point Reyes, California
Station ID: 029
Location: 37 56.76 N; -123 28.20 W
Water Depth: 301 m
c) CDIP, Coqu ille River Inner, Oregon
Station ID: 037
Location: 43.113335 N; -124.513336 W
Water Depth: 64 m
d) National Data Bu oy Center, Monterey, CA
Station 46042
Location: 36.75 N; -122.42 W
Site elevation: sea level
Water depth: 2115 m
Air temp height: 4 in above site elevation
Anemometer height: 5 m above site elevation
Barometer elevation: sea level
Sea temp depth: 0.6 m below site elevation
These data sets possessed gaps at variou s times du e to system failu re and a variety
of start u ps and shu t downs du e to program fu nding and maintenance. The u ndivided
data sets were pieced together into a continu ou s record from 1983-2008 and entered into
a stru ctu red preliminary data file. The data in the preliminary file represent partially
shoaled wave data specific to the local bathymetry arou nd each monitoring site. To
correct these data to the nearshore of the MPWSP test well site, they are entered into a
refraction/diffraction nu merical code, back-refracted ou t into deep water to correct for
local refraction and island sheltering, and su bsequ ently forward refracted into the
immediate vicinity of the MPWSP test well site, as plotted in Figu re 12 for the 1984-
2008 period of recored.. Thu s wave data off each CDIP monitoring site was u sed to
hindcast the waves at the MPWSP test well site coastal region. The data in Figu re 12a are
valu es u sed as the deep water bou ndary conditions on the Monterey Bay bathymetry grid
(Figu re 11) for the forward refraction compu tations into the MPWSP test well site. The
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deep water wave angles in Figu re 12c are plotted with respect to the direction (relative to
tru e north) from which the waves are propagating at the deep water bou ndary of the
bathymetry grid (Figu re 11). Inspection of Figu re 12a reveals that a nu mber of large
swells of 6 m to 7.4 m heights have affected the Monterey Bay region nearly every year
du ring the period of record. Waves of this size create powerfu l wave indu ced cu rrents
and vigorou s longshore transport and mixing in equ ation (1). The largest local swells
compu ted from ou r analysis of the period of record resu lted from the storm of 5
December 2007, for which the significant wave height was Hm a x =7.4 m and the period
was Tmax =16 sec. The average significant wave height in the 1984-2008 period of record
was H=2.1 m (Figu re 12b), the average wave period was T = 11.3 sec (Figu re 12c),
while the average direction of the waves in Figu re 18c was Ce = 286 degrees tru e.
The backward and forward refractions of CDIP data to correct it to the MPWSP
test well site were done u sing the nu merical refraction-diffraction compu ter code,
OCEANRDS, a modification to the well-known REF/DIFF codes, (Dalrymple, et al.
(1984). A listing o f the codes of OCEANRDS appear in Jenkins and Wasyl (2005).
These codes calcu late the simu ltaneou s refraction and diffraction patterns propagating
over a Cartesian depth grid. OCEANRDS u ses the parabolic equ ation method (PEM),
Radder (1979), applied to the mild-slope equ ation, Berkhoff (1972). To accou nt for very
wide-angle refraction and diffraction relative to the principle wave direction,
OCEANRDS also incorporates the high order PEM Pade approximate corrections
modified from those developed by Kirby (1986a-c). The Pade approximates in
"OCEANRDS" are written in tesseral harmonics, per Jenkins and Inman (1985); in some
instances improving resolu tion of diffraction patterns associated with steep, highly
variable bathymetry su ch as fou nd near the Monterey Su bmarine Canyon. These
refinements allow calcu lation of the evolu tion and propagation of directional modes from
a single incident wave direction; which is a distinct advantage over the more
conventional directionally integrated ray methods which are prone to cau stics (crossing
wave rays) and other singu larities in the solu tion domain where bathymetry varies rapidly
over several wavelengths.
An example of a reconstru ction of the shoaling wave field throu ghou t the
Monterey continental margin region is shown in Figu re 13 u sing the back refraction
calcu lation of the CDIP data from the NDBC bu oy #46042. Wave heights are contou red
in meters according to the color bar scale and represent 6 hou r averages, not an
instantaneou s snapshot of the sea su rface elevation. Note how the shelf bathymetry
indu ced longshore variations in wave height throu ghou t the Monterey Bay region.
Refraction patterns of the type shown in Figu re 13 were generated for each of the 8,149
deep water wave events in Figu re 12 between 1984 and 2008. The resu lting arrays of
local wave heights, periods and directions were throu ghpu t to the LCM for continu ou s
dilu tion modeling. The average shoaled wave heights were 2.1 m. The maximu m
shoaling wave heights was 7.4 m in 2007 u sed in the worst-case erosion modeling. The
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8-
0
11111

Im11111111111111111
1984 1988 1992 1996 2000 2004 2008
24 —
wc) 20 7
-o 16 —
o -
.( s 12 —
a_ –
• 8 —
> –
a' 4

0
1984 1988 1992 1996 2000 2004 2008
ft 350 —
a)
a 300 —
c
. 2 250 —
200 —
a)
ca 150

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1984 1988 1992 1996 2000 2004 2008
Figu re 12a: Wave data reconstru cted from farfield refraction/diffraction analysis of
CDIP measu rements. This data u sed as deep water bou ndary conditions on nearfield
simu lations of beach profile evolu tion at the MPWSP test well locations on the CEMEX
property.
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u
l
a
t
i
v
e

P
r
o
b
a

6992 realizations
mean = 2.52 m
max = 8.97 m
min = 0.57 m
1 2
8
24
%
O
c
c
u
r
r
e
n
c
e

0 2 4 6 8

10
Significant Wave Height, m
Figu re 12b: Probability density (red) and cu mu lative probability (blu e) of wave height
data reconstru cted from farfield refraction/diffraction analysis of CDIP measu rements (cf.
Figu re 12a). This data u sed to estimate probability of occu rrence of wave ru n-u p heights
at the MPWSP test well locations on the CEMEX property.
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u
r
n
u
t
a
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i
v
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P
r
o
b
a
b
i
l
i

25
6992 realizations
mean = 1 1 .4 s ec
max = 28.44 s ec
min = 4.35 s ec
%
O
c
c
u
r
r
e
n
c
e

0 2 4 6 8 1 0 1 2 1 1 1 6 1 8 20 22 24 26 28 30
Dominant Wave Period, s ec
Figu re 12c: Probability density (red) and cu mu lative probability (blu e) of wave period
data reconstru cted from farfield refi - action/diffraction analysis of CDIP measu rements (cf.
Figu re 12a). This data u sed to estimate probability of occu rrence of wave ru n-u p
frequ encies at the MPWSP test well locations on the CEMEX property.
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minimu m shoaling wave height in the period of record was 0.3 m. Examining Figu re 13
in closu re detail, it is noted how the refraction effects over local bathymetry create areas
arou nd the Salinas River Delta where heights increase to 7.4 m. In these areas, the bay
and shelf bathymetry has focu sed the incident wave energy and these regions of
intensified wave energy are referred to as "bright spots." The increased wave heights in
these bright spots increase the shear stress generated over the seabed bou ndary layer and
produ ce large radiation stresses over the water colu mn. This increases the erosion an
resu spension of delta sediments, while propelling that sediment su spension downcoast to
the sou th at high littoral drift rates. Conversely, the dark areas in Figu re 13 arou nd the
MPWSP test well sites are areas where wave heights have been diminished and are
termed "shadows". While shadows represent areas of redu ced mixing and retarded
littoral transport rates they also become areas of positive divergence of drift, where
beach and near shore deposition and accretion of sediment occu rs.
Generally, wave indu ced cu rrents (drift) predominate in the nearshore where
wave shoaling effects are maximu m. Wave indu ced cu rrents increase with increasing
wave height and remain significant over a nearshore domain extending fou r to five su rf
zone widths seaward of the shoreline. These cu rrents flow longshore in the direction of
longshore wave energy flu x (down-drift). These longshore cu rrents increase with
increasing wave height and obliqu ity and flow away from bright spots in the local
refraction pattern (Figu re 13) and towards areas of shadow. The bright spot in the
refraction/diffraction pattern fou nd off the Salinas River in Figu re 13, in combination
with the relative shadow area off the MPWSP test well site, resu lts in a longshore cu rrent
flowing away from the Salinas River and toward the MPWSP test well site and beyond;
thereby produ cing a large scale sou thward flowing net littoral drift in this region of
Monterey Bay, as evident in the beach widths in Figu re 8. This longshore cu rrent system
provides a conveyor belt of sediment from the Salinas River to the test well site with an
associated non-negative divergence of drift terms in equ ation 1, that cau ses the shadow
region arou nd the well site to bean area of sediment deposition and beach accretion .
3.3) Model Initialization, River Sediment Flu x: The Salinas River is the
predominant sou rce of beach sand in the neighborhood of the MPWSP test well sites.
Salinas River sediment yield, .1, is calcu lated from USGS gage station streamflow, Q,
based on the power law formu lation of the sediment rating cu rve given by equ ation (6).
Inman and Jenkins, (1999), u tilize the Salinas River at USGS gage Station, # 11152500 at
Sprekels to make this calcu lation of sediment yield, u sing a =5.83 x 10-11 and b=1.878
in equ ation (6), which resu lts in a coefficient of determination of r 2 = 0.89833 when
compared against limited sediment flu x measu rements on the Salinas River, as detailed in
Inman and Jenkins, (1999). When applying the rating cu rve to the historic daily flow
rates of the Salinas, it is necessary to distingu ish the portion of the total sediment yield
that is beach grade sand (bed load sediments) from the residu al component of wash load.
Wash load consists of the fine grained sediments (silts and clays) that are too fine to be
retained on the beach in the presence of wave action. Based on analysis in Chang (2004),
it was assu med that 63% of the calcu lated sediment yield was sand sized bed load when
the daily flow rate of the Salinas River was greater than 3000 cfs; and that 100% of the
daily sediment flu x is wash load when the daily flow rate was less than 3000 cfs.
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122.05 12-95
Longit ude
121.85 122.1! 122.25
37.00
36.90
36.80
36.70
3 . 0
L
a
t
i
t
u
d
e

Lat Lon of 4 MPWSP Tes t W el l s
36.7273784°,.-1 21 3065666'
36,72541 84°; -1 21 .8067404'
363234332', -1 21 .80681 52'
36.7229063", -1 21 .80671 86'
27
Figu re 13: MPSWSP refraction/diffraction pattern for the largest storm in the 1984-2008
period of record, occu rring on 5 December 2007. Deep water statistics obtained from
CDIP # 071 Harvest Platform monitoring site. Deep water wave height = 5.78 m; period
= 18 sec; direction = 265 degrees tru e. (CDIP, 2008).
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1943
wet
28
Applying these valu es for bed load/wash load fractions to the flow rates at the Sprekels
USGS gage station gives a time series of the annu al yield of bed load sediments (sands)
for the Salinas River in metric tons. This resu lt is plotted in Figu re 14 as a cu mu lative
residu al. Climatic trends become more apparent when river sediment yield data are
expressed in terms of cu mu lative residu als j r,, taken as a ru nning cu mu lative su m of
departu res of annu al valu es, J1 from their long-term mean valu es , su ch that
J„ =

(j1 —J) where n is the sequ ential valu e of a time series of ii years.
50
Salinas River ** Lat. 36.7 ° N
0
1983
30 —
ec' S20
10 —
co
()
0 —
1928
- 10 --
—20
c.)
wet

N\N
1968
977

1969
NI
1
1 7 x 10
6
ton/yr 52 yr Mean
30
1920 1940 1960 1980 2000
Water Year
Figu re 14: Cu mu lative residu al time series of bed load sediment flu x from the Salinas
River u sing a 52-year mean (1944-95) over the period of record.
While the average annu al yield of bedload sediments from the Salinas River was
fou nd to be 1.7 million metric tons (1944-95), pronou nced effects of a series of La Nina
(cool-dry) and El Nifio (warm-wet) periods can also be fou nd on sediment yield in Figu re
20. This is a consequ ence of variability in local rainfall accompanying La Nina (cool-dry)
and El Nitio (warm-wet) periods. Figu re 15 shows this rainfall variability u sing the rain
gage at Santa Cru z as a proxy for the Monterey Bay climate. Figu re 14 and 15 both
display a clear change from wet to dry climate beginning in 1944. This is significant
becau se it relates the extreme landward position of the 1933 shoreline contou r at the
MPWSP test well site in Figu re 3 ofJenkins (2012) to a dry period, when Salinas River
sediment flu x was minimal; (ie., narrow dry beach corresponds to dry periods with
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n
n
u
a
l
R
a
i
n
f
a
l
l
,

c
m

C
u
m
u
l
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R
e
s
i
d
u
a
l
,

c
m

29
a.
1 50
100 —
50 —
0
1 870 1 890

1 91 0 1 930

1 950 1 970 1 990 201 0
Mean Annu al Santa Cru z Rainfall = 66.7 cm
( 134 years )
b.
2006
1 870 1 890 1 91 0 1 930 1 950
Calendar Year
Figu re 15: a) Time series of annu al rainfall at Santa Cru z, CA. b) Cu mu lative residu al
time series of annu al rainfall at Santa Cru z, CA .
1970 1990 2010
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minimal beach nou rishment from river sediment su pply). Note in Figu re 14 that periods
of low sediment yield representing dry climate appear as intervals of decreasing residu al
(negative slope), while high sediment yield (wet periods) are represented by intervals of
increasing residu al (positive slope). Within the 52-year period (1944-1995), the data in
Figu re 15 showed a u niform dry period lasting for abou t 25 years from 1944 throu gh
1977. However, there was a relatively weak El Nifio embedded in 1944-77 drou ght
period that occu rred in 1969, which had a peak SOI of -0.8 (Figu re ). A storm associated
with the 1969 El Nifio cau sed
significant flooding and high sediment yield on the Salinas River.
The cu mu lative residu al of the historic sediment yield of the Salinas River reveals
a nu mber of significant featu res having particu lar importance to the nou rishment and
long-term stability of the sou thern beaches in Monterey Bay. Beginning in 1978, the
California climate began transitioning into a warmer wetter period characterized by a
su ccession of powerfu l El Nifios, particu larly those in, 1978, 1980, 1983, 1993 and 1995,
[Inman & Jenkins, 1997]. The wet period has a mean annu al su spended sediment flu x
abou t 5 times greater, cau sed by these strong El Nifio events that produ ce floods with an
average recu rrence of abou t 5 years (more frequ ently than beach and shoreline sampling).
The sediment flu x of the rivers du ring the three major flood years averages 27 times
greater than the annu al flu x du ring the previou s dry climate. The floods brou ght by each
of these El Nino rain events (Figu re 15) delivered many times the long term mean of the
Salinas River, cau sing the cu mu lative residu als in Figu re 14 to abru ptly increase. A
similar su ccession of El Nifio floods also preceded the cool/dry period of 1944-77,
(Figu re 15) cau sing major episodes of sediment yield in 1937, 1938, 1941 and 1943
(Figu re 14). The peak annu al discharge of sediment (l 00-year storm) is 9.9 million
tons/yr. While a ru bber dam has been installed du ring su mmer months as part of the
Salinas Diversion Project, these sediment flu x statistics for the bed load sediments and
the yield patterns in Figu re 14 are not likely to be effected, becau se the flu x of bed load
(sands) predominantly occu rs in response to the winter storm floods when the diversion
darn will not be in place.
4) Littoral Drift od Sand and Divergence of Drift
To qu antify the effect of sediment yield from the Salinas River on littoral drift and
beach stability at the MPWSP well sites, we invoke the LCM algorithms of the Coastal
Evolu tion Model (Figu re 9) after initializing for historic wave climate and river sediment
flu x as detailed in Section 3.2 and 3.3. The LCM compu tational sequ ence begins with
forward refraction calcu lation u sing OCEANRDS to solve for the wave height and x and
y components of the wave nu mber at each point in the sequ ence of cou pled control cells
(Figu re Ob). The x and y components of wave nu mber are orthogonalized to compu te
the significant wave angle in each grid cell relative to the shoreline normal of these near-
field compu tational cells. The calcu lation is carried shoreward u ntil the wave height
meets or exceeds 5/4 the local depth. This condition defines the point of wave breaking.
The wave height, Hb wave angle ab and grid cell location (xb, yb) at which this wave
breaking condition is met are written into a brea ker file for u se in su bsequ ent potential
longshore transport calcu lations.
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The breaker files generated by refraction/diffraction calcu lations are u sed to compu te the
potential longshore transport rates at 6 hou r intervals. The formu lation for the longshore
transport rate is taken from the work of Komar and Inman (1970) according to:
q1 2 =K (C„ Sti b
where qa is the local potential longshore transport rate; C,, is the phase velocity
of the waves; Sy, = Esina bcosa b is the radiation stress component; a b is the breaker
angle relative to the shoreline normal; E =1 /8pgHb2 is the wave energy density; p is the
density of water; g is the acceleration of gravity; fib is the breaking wave height; and, K
is the transport efficiency equ al to:
K =2.2V crb(12)
2g tan2 fl
c =
rb
Hh a 2
(13)
Here crb is the reflection coefficient which is calcu lated from a gross estimate of the
nearshore bottom slope, as determined from the bathymetry file u sing the break point
coordinates and the position of the 0 MSL contou r; and, a is the radian frequ ency = 27 r/T,
where T is the wave period. These equ ations relate longshore transport rate to the
longshore flu x of energy at the break point which is proportional to the squ are of the near
breaking wave height and breaker angle. By this formu lation, the compu ter code
calcu lates a local longshore transport rate for each break point locations along the
shoreline of the forward refraction grid shown in Figu res 13. The potential longshore
sand transport rates calcu lated for these points are ensemble averaged for each 6 hou r
time step interval within the 1980-2000 simu lation period to obtain estimates of the
flu xes, qL 2 in-and-ou t of the near-field compu tational cell du e to local longshore
transport (littoral drift).
Figu re 16 shows the time averaged wave-driven flu xes along 17 km of the sou th
coast of Monterey Bay near the Salinas River and adjacent MPWSP test well site. The
resu lts are compu ted from equ ations (1-6) & (11 - 13) based on CDIP monitoring data
and averaged over the 1984-2008 period of record. The u pper panel of Figu re 16 gives
the alongshore variation in wave energy flu x, where the highest energy flu xes correspond
to the bright spot in the reftaction/diffraction at the Salinas River delta shown in Figu re
13. Local wave energy flu xes are on average a factor of 2 greater at the MPWSP well
sites, as a consequ ence of the predominant refraction/diffraction pattern in Figu re 13. The
essential featu res of this pattern are the sheltering effects on waves approaching from the
sou th/sou thwest along the sou th coast of Monterey Bay that is cau sed by the Monterey
Peninsu la; and where the shape of the shelf and the Salinas River delta formation that
focu s wave energy on the delta. The bright spot at the delta and the adjoining shadow
areas in the reftaction/diffraction featu res produ ce a net sou thward flowing littoral drift of
sand (middle panel of Figu re 16), directed away from the river and toward the well site;
and a positive divergence of drift the neighborhood of the MPWSP test well site. A
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 257, Packet Page 277
32
MPWSP
200

Tes t Well Site
1 60
E 1 20
a)
80
ca
40
0
30
20
1 0
0
-1 0
-20
-30
0
"t
0
Z
a
1
IIIIIII I INIIII1
4 8 1 2
Dis tance Alongs hore from North to South, km
1 6
Figu re 16: Time averaged wave-driven flu xes along the sou th coast of Monterey Bay
near the Salinas River. Flu x compu tations based on wave forcing from CDIP monitoring
data, 1984-2008 (cf Figu re 12).
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 258, Packet Page 278
33
positive divergence adrift = gin - gou t > 0 occu rs when new sediment is added to a
control cell from river sediment yield (the Jterm in equ ation I ), and/or when the
longshore transport into a control cell, ch., ,is greater than the longshore transport leaving
that cell, qout . Both conditions contribu te to a bu ild-u p of sediment in that control cell
leading to beach accretion (after equ ations 2 & 6).
Figu re 16 shows a positive divergence of drift with beach accretion along the
reach of shoreline from abou t 2.5 km north of the Salinas River and extending sou th to
abou t 4 kilometers sou th of the MPWSP test well site in the neighborhood of the
CEMEX sand mining operation. This calcu lation is consistent with the wide beaches and
blu ff du nes fou nd in the neighborhood of the Salinas River and test well site in Figu re 8.
Wind-blown losses of beach sand have been neglected in this simu lation, bu t the positive
divergence of drift that averages 15 m 3 /day at the MPWSP test well site and abou t 5
mi/day at the CEMEX sand mining plant providing a continu al sou rce of sand at both
sites to su stain adequ ate beach sand volu mes; so mu ch so that wind effects have formed
sand du nes in front of the blu ff formations evident in Figu res 3 & 8. Beaches with long-
term averages of positive divergence of drift are not prone to erosion (Inman and Bru sh,
1972; Inman and Masters, 1991; Inman and Jenkins 1997; Jenkins and Wasyl, 2005).
The positive divergence of drift at this new MPWSP test well site is abou t dou ble the
positive divergence of drift at the former MPWSP test well site evalu ated in Jenkins
(2012) that was located abou t 2.5 km fu rther down drift to the sou th, indicating the new
well site is a better location with respect to beach stability. Fu rthermore, there is no
discernible difference between the littoral drift and divergence of drift at the CEMEX
plant in the present calcu lations in Figu re 16, (that inclu de the effects of sheet pile box
coffer darn and tetrapod detached breakwater arou nd the new MPWSP test well site)
versu s similar calcu lation in Jenkins (2012) for the former MPWSP test well that did not
incorporate shore protection stru ctu res.
5) Beach Profile Stability and By-Passing Bars
In this section we u se state-of-the-art algorithms for the equ ilibriu m beach profile
(Jenkins and Inman,2006) to calcu late the long term variability of beach profiles at the
new MPWSP test well site. This analysis takes into accou nt the effects of sheet pile box
coffer dam and tetrapod detached breakwater on the beach reflection coefficient
(equ ation 13) and on the littoral drift. The beach profile algorithms are calibrated u sing
su rvey measu rements from USGS (2006). The calibrated algorithms are then forced by
24 years of continu ou s wave data from Figu re 12 u sing time varying divergence of drift
(Figu re 16) to compu te changes in the mean shoreline position from equ ation (10), in
order to determine the probable envelope of profile variability over the well sites.
In Jenkins and Inman (2006), equ ilibriu m beaches are posed as isothermal
shorezone systems of constant volu me that dissipate external work by incident waves into
heat given u p to the su rrou ndings. By the maximu m entropy produ ction formu lation of
the second law of thermodynamics (the law of entropy increase), the shorezone system
achieves equ ilibriu m with profile shapes that maximize the rate of dissipative work
performed by wave-indu ced shear stresses. Dissipative work is assigned to two different
shear stress mechanisms prevailing in separate regions of the shorezone system, an ou ter
solu tion referred to as the sh orerise and a ba r-berm inner solu tion. The equ ilibriu m
shorerise solu tion extends from closu re depth (zero profile change) to the breakpoint, and
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 259, Packet Page 279
34
maximizes dissipation du e to the rate of working by bottom friction. In contrast, the
equ ilibriu m bar-berm solu tion between the breakpoint and the berm crest maximizes
dissipation du e to work by internal stresses of a tu rbu lent su rf zone. Both shorerise and
bar-berm equ ilibria were fou nd to have an exact general solu tion belonging to the class of
elliptic cycloids. The elliptic cycloid allows all the significant featu res of the equ ilibriu m
profile to be characterized by the eccentricity and the size of one of the two ellipse axes.
These two basic ellipse parameters were related In Jenkins and Inman (2006) to both
process-based algorithms and to empirically based parameters for which an extensive
literatu re already exists. The elliptic cycloid solu tions display wave height, period and
grain size dependence and have demonstrated generally good predictive skill in point-by-
point comparisons with measu red profiles.
Figu re 17 shows the envelope of variability of the equ ilibriu m beach profiles
calcu lated by the thermodynamic algorithms from Jenkins and Inman (2006), as applied
to the new MPWSP well site with coffer dam and detached breakwater du ring the historic
period l 984-2008. Figu re 17 shows that (over the long term represented by this period of
record), beach profiles arou nd the well site can cau se sand levels to vary vertically by as
mu ch as 6 ft., generally accreting 2 ft. above present grade, and eroding 4 ft. below
present grade. These extreme sand level variations do not overtop the sheet pile coffer
dam or tetrapod detached breakwater, nor do the extreme sand level variations u ndercu t
the fou ndation of either shore protection stru ctu re. A critical featu re in all of these beach
profiles is the formation of an equ ilibriu m sand bar immediately seaward of the tetrapod
detached breakwater. Bar formation seaward of hardened shore protection devices are
well known to coastal engineering, (Inman and Masters, 1991; Inman and Jenkins, 2004),
and are a consequ ence of the increase in the beach reflection coefficient cau sed by the
steep seaward facing slopes of these stru ctu res. In the site-specific case of the new
MPWSP well site, the shore protection stru ctu res (coffer dam and detached breakwater)
are situ ated high enou gh u pslope on the bar-berm portion of the beach profile that the
reflection-indu ced sand bar remains inside the su rf zone (landward of the wave break
point). Here, the bar fu nctions act as by-passing pathway for the long shore transport of
sand (littoral drift). Hence it is referred to here-in as the "by-passing bar". This by-
passing concept is shown conceptu ally in Figu re l 8, where the nearshore bathymetry
calcu lated at the MPWSP test well from the equ ilibriu m profiles in Figu re 17 is
su perimposed on the aerial view of the well site from Figu re 3. The figu re has been
annotated to show the how the preponderance of the littoral drift (that moves inside the
su rf zone) flows arou nd the coffer dam and detached breakwater stru ctu res following a
pathway provided by the by-passing bar. In essence, the by-passing bar cau ses the local
bathymetry to develop a seaward bu lge. This seaward bu lge in the local bathymetry
cau ses the su rf zone to likewise develop a seaward bu lge; and where the su rf zone goes,
the littoral drift follows. Consequ ently, the shore protection stru ctu res of the new
MPWSP well site will not intercept or cu t-off the littoral drift in the manner of a
shoreline normal jetty stru ctu re; and will not diminish the longshore transport rates of
sand in the littoral drift that reach the CEMEX sand mining plant. This is fu rther
confirmed by the similitu de in littoral drift rates and divergence of drift calcu lations
between the new and former MPWSP well sites, as noted in the previou s section.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 260, Packet Page 280
LEMPORARY PRECAST CONCRE* BARRIER S
7.PORARY SHE' ET PILING
FOR CONSTRUCTON•
DIA
CASSION
-47
INOIA
;ACCESS CASING
L
PIPELINECONNECTOR
TO TEST
4
-Typ. of
Beach Profile
' SCALE: FION1 2, L.A2S'
VELLT. 1 *.( 1 0.
22 DEGREE SLANT
SECTION A-A
1
35
Figu re 17: Envelope of equ ilibriu m beach profiles arou nd the u pdated MPWSP test well
site fortified with sheet pile box coffer dam and tetrapod detached breakwater. Profiles
compu ted from long term wave record (Figu re 12) based on pu blished algorithms from
Jenkins and Inman (2006) and divergence of drift from Figu re 16.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 261, Packet Page 281
1 1M,PUNIM
kiftora i Drift
Tetra-pod
detached breakwater 10'dia.
tu nnel calson
36
Figu re 18: Su perposition of nearshore bathymetry at MPWSP test well site fortified with
sheet pile box coffer darn and tetrapod detached breakwater, showing littoral drift
pathway arou nd well site via by-passing sand bar calcu lated in Figu re 17.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 262, Packet Page 282
6) Conclu sions:
This technical memorandu m evalu ates littoral sand transport (littoral drift) and
beach profile change in the neighborhood of slant intake wells proposed as part of the
Monterey Peninsu la Water Su pply Project (MPWSP). Constru ction of the intake wells in
the swash zone will requ ire a temporary barrier and sheet piling forming a box coffer
dam arou nd the well heads and associated hydrau lic conveyance to protect equ ipment and
personnel du ring constru ction. The seaward face of the sheet pile coffer dam will be
protected from wave impact and scou r by a temporary detached breakwater constru cted
from pre-cast concrete tetra pods or sand-filled geo-ba gs or geo-tubes. These constru ction
techniqu es have the advantage of ease in placement and recovery. Conventional ru bble
mou nd breakwater constru ction with qu arry stone is prone to scou r and bu rial on sandy
beaches, and is extremely difficu lt to remove once constru cted, as each stone mu st du g
ou t with a clam shell type of apparatu s. The tetrapod or sand-filled geo-bags/geo-tu bes on
the other hand are resistant to wave scou r and bu rial. Tetrapods have a steel lift ring and
geo-bags are made of geo-textile fabrics which render both easy to place and recover with
conventional rigging and mobile crane operations. These featu res also redu ce placement
and recovery schedu les, which is an important attribu te since constru ction will need to be
accomplished within the five-month (October throu gh Febru ary) non-nesting season for
the Snowy Plover, and the temporary barrier and sheet piling mu st be removed prior to
March l .
The beach and blu ff du nes at the MPWSP test well site derive their sand su pply
from proximity to the Salinas River, only 2.2 km u p-coast (to the north) from the
MPWSP test well site. The net littoral drift of sand in this qu adrant of Monterey Bay is
sou thward, from the Salinas River towards the MPWSP test well site and the CEMEX
plant fu rther to the sou th. The sou thward direction of net littoral drift insu res that the
beach and du ne blu ff system at the MPWSP test well site and CEMEX plant is
continu ally nou rished by the sediment yield of the Salinas River, the most sediment
produ ctive river in California sou th of the Sacramento River delta. The decisive qu estion
to be addressed in this technical memorandu m is whether or not the coffer dam and
detached breakwater arou nd the test well site will interru pt or prevent this sou thward
directed net littoral drift, and thereby create a beach sand su pply deficit in the
neighborhood of the CEMEX sand mining operations. We u tilized the Coastal Evolu tion
Model (Jenkins and Wasyl, 2005) to make preliminary qu antitative assessments of net
littoral drift of sand and equ ilibriu m beach profile change at the new MPWSP test well
site; and to make comparisons with similar calcu lations made for the former MPWSP
well site in Jenkins (2012). The algorithms of this model have been pu blished in the peer
reviewed literatu re, with the equ ilibriu m beach profile algorithms appearing in Jenkins
and Inman (2006), and the divergence of drift and shoreline evolu tion algorithms
appearing in Jenkins et al 2007.
The model simu lations show a positive divergence of drift with beach accretion
along the reach of shoreline from abou t 2.5 km north of the Salinas River and extending
sou th for abou t 4 kilometers beyond the MPWSP test well site in the neighborhood of the
CEMEX sand mining operation. This calcu lation is consistent with the wide beaches and
37
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 263, Packet Page 283
38
blu ff du nes fou nd in the neighborhood of the Salinas River and test well site in aerial
photos. Wind-blown losses of beach sand have been neglected in this simu lation, bu t the
positive divergence of drift, (that averages 15 m 3/day at the MPWSP test well site and
abou t 5 m3/day at the CEMEX sand mining plant) provide a continu al sou rce of sand at
both sites to su stain adequ ate beach sand volu mes; so mu ch so that wind effects have
formed sand du nes in front of the blu ff formations, as evident in aerial photos. Beaches
with long-term averages of positive divergence of drift are not prone to erosion. The
positive divergence of drift at this new MPWSP test well site is abou t dou ble the positive
divergence of drift at the former MPWSP test well site evalu ated in Jenkins (2012) that
was located abou t 2.5 km fu rther down drift to the sou th; indicating the new well site is a
better location with respect to beach stability. Fu rthermore, there is no discernible
difference between the littoral drift and divergence of drift at the CEMEX plant in the
present calcu lations (that inclu de the effects of the sheet pile box coffer dam and tetrapod
detached breakwater arou nd the new MPWSP test well site), versu s similar calcu lation in
Jenkins (2012) for the former MPWSP test well that did not incorporate any shore
protection stru ctu res.
The envelope of variability of the equ ilibriu m beach profiles calcu lated by the
model, (as applied to the new MPWSP well site with coffer dam and detached
breakwater), shows that over the long term, beach profiles arou nd the well site can cau se
sand levels to vary vertically by as mu ch as 6 ft., (generally accreting 2 ft. above present
grade, and eroding 4 ft. below present grade). The average significant wave height in the
1984-2008 period of record was H=2.1 m, the average wave period was T =11.3 sec,
while the average direction of the waves in was = 286 degrees tru e. These extreme
sand level variations do not allow wave ru n-u p to overtop the sheet pile coffer dam or
tetrapod detached breakwater, nor do the extreme sand level variations u ndercu t the
fou ndation of either shore protection stru ctu re. A critical featu re in all of these beach
profiles is the formation of an equ ilibriu m sand bar immediately seaward of the tetrapod
detached breakwater. Bar formation seaward of hardened shore protection devices are
well known to coastal engineering, and are a consequ ence of the increase in the beach
reflection coefficient cau sed by the steep seaward facing slopes of these stru ctu res. In the
site-specific case of the new MPWSP well site, the shore protection stru ctu res (coffer
dam and detached breakwater) are situ ated high enou gh u pslope on the bar-berm portion
of the beach profile that the reflection-indu ced sand bar remains inside the su rf zone
(landward of the wave break point). Here, the bar fu nction provides a by-passing pathway
for the long shore transport of sand (littoral drift). The preponderance of the littoral drift
moves inside the su rf zone, where it will flow arou nd the coffer dam and detached
breakwater stru ctu res following a pathway provided by the by-passing bar. In essence,
the by-passing bar cau ses the local bathymetry to develop a seaward bu lge. This seaward
bu lge in the local bathymetry cau ses the su rf zone to likewise develop a seaward bu lge;
and where the su rf zone goes, the littoral drift follows. Consequ ently the shore protection
stru ctu res of the new MPWSP well site will not intercept or cu t-off the littoral drift in the
manner of a shoreline normal jetty stru ctu re; and will not diminish the longshore
transport rates of sand in the littoral drift that reaches the CEMEX sand mining plant.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 264, Packet Page 284
7) References:
Allen, J. R. L., 1984, Sedim enta ty Structures, Th eir Ch a ra cter a nd Ph ysica l Ba sis.
Amsterdam: Elsevier.
Allen, J.R. L., 1985, Principles ofPh ysica l Sedim entology. London, Boston: George
Allen & Unwin.
Alexander R. B., Lu dtke, A. S., Fitzgerald, K. K. and Schertz, T. L., 1996, Data from
selected U. S. Geological Su rvey National Stream Water-Qu ality Monitoring
Networks (WQN) on CD-ROM, U. S. Geological
Su rvey, Open-File Report 96-337.
Brownlie, W. R. and Taylor, B. D., 1981, Coastal sediment delivery by major rivers in
sou thern California, Sediment Management of Sou thern California Mou ntains,
Coastal Plains, and Shorelines, Part C, California Institu te of Technology,
Pasadena, CA, Environmental Qu ality Laboratory Report No. 17-C, 314 pp.
CDIP, 2012, "Coastal Data Information Program" http://cdip.u csd.edu /
California Coastal Committee (CCC), 2003, Esta blish ing Developm ent Set Ba cks from
Coa sta l Bluffs, Memorandu m W11.5. Janu ary 16, 2003.
Gu y, H. P., 1970, Flu vial sediment concepts, Book 3, Ch. Cl in Techniqu es of Water-
Resou rces Investigations of the U. S. Geological Su rvey, U. S. Government
Printing Office, Washington, DC, 55 pp.
Gu y, H. P. and Norman, V. W., 1970, Field methods for measu rement of flu vial
sediment, Book 3, Ch. C2 in Techniqu es of Water-Resou rces Investigations of the
U. S. Geological Su rvey, U. S. Government Printing Office, Washington, DC, 55
pp.
Hu rst, H. E., 1951, Long-term storage capacity of reservoirs, American Soc.
Civil Engineers, Trans. v. 116, p. 770-799.
Hu rst, H. E., 1957, A su ggested statistical model of some time series which
occu r in natu re, Natu re, v. 180, n. 4584, p. 494.
Inman, D. L. and Masters, P. M., 1991, Coastal sediment transport concepts and
mechanisms, Chapter 5 (43 pp.) in State of the Coast Report, San Diego Region,
Coast of California Storm and Tidal waves Stu dy, U. S. Army
Corps of Engineers, Los Angeles District, Chapters 1-10, Appen. A-Q.
39
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 265, Packet Page 285
40
Inman, D. L., M. H. S. Elwany & S. A. Jenkins, 1993, "Shoreline and bar-
berm profiles on ocean beaches," Jour. Geoph ys. Res., v. 98, n. C10, p.
18,181-18,199
Inman, D. L. and Jenkins, S. A., 1997, Changing wave climate and littoral drift along the
California coast, p. 538-549 in 0. T. Magoon et al., eds, Cali-
fornia and the World Ocean '97, Amer. Soc. Civil Engin., Reston, VA,
1756 pp. San Diego, CA, 12 pp.
Inman, D. L. & S. A. Jenkins, 1999, "Climate change and the episodicity of sediment
flu x of small California rivers," Jour. Geology, v. 107, p. 251-270.
http://repositories.cdlib.org/sio/cmg/2/
Inman, D. L. & S. A. Jenkins, 2004, "Energy and sediment bu dgets of the
global coastal zone," p. 506-514 in M. Schwartz, ed., Encyclopedia ofCoa sta l
Science, Klu wer Academic Pu blishers, Dordrecht, Netherlands.
http://repositories.cdlib.org/sio/cmg/5/
Inman, D. L. & S. A. Jenkins, 2004, "Accretion and erosion waves on beaches," p. 1-4 in
M. Schwartz, ed., Encyclopedia ofCoa sta l Science, Klu wer Academic Pu blishers,
Dordrecht, Netherlands. http://repositories.cdlib.org/sio/cma/6/
Jenkins, S. A. and J. Wasyl, 2005, "Coastal evolu tion model," Scripps Institu tion of
Oceanography Tech Report No. 58, 179 pp +
appendices. http://repositories.cdlib.org/sio/techreport/58/
Jenkins, S. A. and D. L. Inman, 2006, "Thermodynamic solu tions for equ ilibriu m beach
profiles", Jour. Geoph ys. Res., v.3, CO2003, doi:10.1029, 21pp.
Jenkins, S. A., Inman, D.L., Michael D. Richardson, M.D., Thomas F. Weyer, T.F.
and J.Wasyl, 2007, "Scou r and bu rial mechanics of objects in the nearshore -,
IEEE Jour.Oc.Eng, vol.32, no. 1, pp 78-90.
Jenkins, S. A., 2012, "Project Development Memorandu m: on Equ ilibriu m Beach Profile
Change at Proposed Monterey Peninsu la Water Su pply Project Slant Test Well
Project", su bmitted to RBF Consu ltants, 20 Au gu st, 2012, 57 pp.
Hapke C., et al., 2009, Ra tes a nd Trendy ofCoa sta l Ch a nge in Ca lifornia a nd th e
Regiona l Beh a vior ofth e Bea ch a nd CliffSystem . Jou rnal of Coastal Research.
2009, Vol. 25, No. 3, pp 603-615.
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 266, Packet Page 286
41
NCDC, 1998, National Climatic Data Center at URL Address:
http://www.ncdc.noaa.gov/ol/climate/climatedata.html
NOAA, 1997, Climatological Archives @ INTERNET URL
http://www.nwsla.noaa.gov/zones
Philip Williams & Associates, Ltd., 2008, Coa sta l Regiona l Sedim ent Ma na gem ent Pla n
for South ern Monterey Ba y (CRSMP). November, 2008.
Porterfield, G., 1972, Compu tation of flu vial-sediment discharge, Book 3, Ch. 3
in Techniqu es of Water-Resou rces Investigations of the U. S. Geological
Su rvey, U. S. Government Printing Office, Washington, DC, 55 pp.
Sou tar, A. and Crill, P. A., 1977, Sedimentation and climatic patterns in Santa Barbara
Basin du ring the 19th and 20th Centu ries, Geological Soc. Amer. Bu ll., v. 88,. p.
1161-72.
United States Geological Su rvey, 1997, California Hydrologic Database, at INTERNET
URL
http://water.u sgs.gov/swr/CA/dta.m
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INTERNET URL
http://wwwrvares.er.u sgs.gov/wqn96cd/wqn/wq/region18/hydrologic u nit
code.
United States Geological Su rvey, Hapke et al., 2006, Na tiona l Assessm ent ofSh oreline
Ch a nge Pa rt 3: Historica l Sh oreline Ch a nge a nd Associa ted Coa sta l L a nd L oss
a long Sa ndy Sh orelines ofth e Ca lifornia Coa st, Open File Report-1219.
United States Geological Su rvey, Hapke C., Reid, D., 2006, Na tiona l Assessm ent of
Sh oreline Ch a nge: A GIS Com pila tion ofVector Sh orelines a nd Associa ted
Sh oreline Ch a nge Da ta Ibr th e Sa ndy Sh orelines ofth e Ca lifornia Coa st, Open
File Report-1251.
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Sh oreline Ch a nge Pa rt 4: Historica l CliffRetrea t a long th e Ca lifornia Coa st,
Open File Report- 1133.
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CliffEdge a nd Associa ted CliffErosion Da ta for th e Ca lifornia Coa st, Open File
Report-1112
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 267, Packet Page 287
ATTACHMENT 3
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 268, Packet Page 288
TECHNICAL MEMORANDUM
Monterey Penins ula Des alination Project
Prepared for California American Water
Draft Date: March 1 , 201 3
Final Date: March 4, 201 3
Authors: R. Rhodes Trus s ell, Ph.D., P.E., BCEE
Celine C. Trus s ell, P.E., BCEE
Reviewers: R. Shane Trus s ell, Ph.D., P.E., BCEE
David R. Hokans on, Ph.D., P.E., BCEE
Job Number: 99.002
Subject: Defining the need for RO s econd pas s for the Des alination Plant
This Technical Memorandum ( TM) explains why the Monterey Penins ula Des alination
plant requires a s econd pas s in its Revers e Os mos is ( RO) s ys tem. The TM is prepared
as a res pons e to the DRA recommendation to abandon the concept of a s econd pas s
RO s ys tem as not neces s ary to meet the CDPH Notification Level ( NL) for Boron and
s econdary s tandards for s odium and chloride. After careful analys is , it is the
profes s ional opinion of Trus s ell Technologies , Inc. that a full or partial s econd pas s RO
s ys tem is the mos t cos t-effective way to comply with the CDPH NL for boron and to
achieve a wholes ome domes tic water s upply for the Monterey community.
1 - THE SECOND PASS CONCEPT.
Boron, s odium and chloride are all unus ually high in s eawater and, as a res ult, all three
are of concern in the des alinated water as well. Although the total dis s olved s olids
( TDS) in the des alinated water will be low, unlike mos t fres h water s ources , where
calcium and bicarbonate dominate, chloride and s odium compris e a majority of the TDS
in des alinated water. The maximum chloride concentration for a s ingle-pas s revers e
os mos is ( RO) s ys tem is anticipated to be between 1 00 and 200 mg/L. The maximum
s odium concentration for a s ingle-pas s RO s ys tem is anticipated to be between 60 and
1 20 mg/L. Thes e elevated levels are as s ociated both with advers e effects on public
health and with advers e effects on the plant life in local lands capes . All s eawater
des alination plants producing water for domes tic us e mus t addres s this is s ue. For the
pas t two decades , all large-s cale des alination plants built around the globe have
accomplis hed this us ing a full or partial s econd pas s through the RO proces s .
TRUSSELL TECHNOLOGIES, iNC I PASADENA I SAN DIEGO I OAKLAND I
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 269, Packet Page 289
1 45 gpm

First Pass RO

60%
Concentrate
retu rned .41
to the Ocean
5,422 gpm
Second Pas s Feed
40%@ 80 to 90 ps i
Firs t Pas s
1 ,4-46 gprn
Permeate
40%3,61 5 Wm
90,
Second
Pass RO
Second Pas s
Permeate
1 ,301 gpm
Need For ROSecond Pass Summary (continued) 2/20 1 3
The conceptual des ign for the Des alination Plant, which California American Water
propos es to cons truct in the Monterey area als o includes an RO s ys tem with a s econd
pas s . The firs t RO pas s operates at a very high pres s ure and treats all the water
entering the plant. A little les s than half of this water ( 40%or s o) is "recovered" as a
des alinated product and a little over half ( 60%or s o) contains mos t of the s alts and is
returned to the ocean. In the cas e of the California American Water des ign,
approximately 40 %of the water "recovered" from the firs t pas s is again pas s ed through
a lower pres s ure, s econd pas s RO s ys tem and blended with the remaining "recovered"
water from the firs t pas s to produce a final product that meets s pecifications . Figure 1
illus trates the concept s chematically. The flows s hown in the Figure are thos e for a
Des alination Plant des igned to produce 5 million gallons per day of des alinated water
( total product flow 3,470 gpm).
Second Pas s Brine Recycle
@ 800 to 900 ps i
Influ ent Seawater
@ 800 to 900 psi
8,894 gpm
1 0%
Total Produ ct
Flow
3,470 gpm
(5 mgd)
Second Pas s Bypas s
60%

41 69 gpm
Figu re 1 - Schematic of a 5 mgd Seawater Desalination Plant With a 40% Second Pass
(Showing Approximate Flows and Pressu res)
2 - ESTABLISHING APPROPRIATE GOALS FOR BORON, CHLORIDE AND SODIUM
The is s ue of greates t concern is the level of boron in des alinated water. The California
Department of Public Health ( CDPH) has es tablis hed a Notification Level ( NL) of 1 mg/L
for boron in drinking water. Should boron contamination be pres ent, at a level
exceeding the CDPH NL, California American Water would be required by the Health
and Safety Code §1 1 6455 to notify the local governing bodies of drinking water
cons umers ( e.g. the City Councils and the County Board of Supervis ors ) that boron is
pres ent in the local drinking water at levels above the Notification Level s pecified by the
California Department of Public Health. CDPH further recommends that CAW directly
notify its cus tomers about the pres ence of boron, and about the health concerns
as s ociated with expos ure to it ( CDPH 201 3).
To avoid circums tances that might alarm the public and caus e them to los e confidence
in the water s upply, s uch as exceeding the NL for a contaminant and having to notify
the authorities , water utilities normally des ign and operate treatment facilities to provide
a margin of s afety. The magnitude of that margin of s afety varies from one
TRUSSELL TECHNOLOGI ES, INC. PAGE 2 OF 6
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Need For ROSecond Pass Summary (continued)2/20 1 3
circums tance to the next, but it is generally about 0.5 ( 0.5 x regulatory limit) and rarely
more than 0.8 ( 0.8 x regulatory limit). A margin of s afety of 0.5 is normally us ed when
one exceedance can have cons equences . The CDPH Notification Level ( NL) of 1 mg/L
has only one s ignificant figure, s o it could be taken that boron levels as high as 1 .4 mg/L
technically do not exceed this limit. On this bas is , a des ign goal for the maximum
concentration of 0.7 might be chos en. California American Water would be more
comfortable maintaining a s afety margin that guarantees that boron level will never
exceed 1 .0 mg/L. This would put the des ign goal for a maximum concentration of 0.50
mg/L.
CDPH has es tablis hed a s econdary Maximum Contaminant Level ( MCL) for chloride of
250 ppm. It is als o well-known that high s odium intake is as s ociated with hypertens ion
and EPA dis cus s ed a s odium MCL as low as 25 ppm s everal years ago, but has taken
no action. Where chloride and s odium are concerned, plant toxicity is probably a larger
is s ue. In fact plant toxicity is als o a concern with boron as well. Boron has been s hown
to be toxic to many plants at concentrations above 0.5 ppm. Plant toxicity from boron
can res ult in leaf burn, leaf cupping, chloros is ( i.e., chlorophyll deficiency), anthocyanin
( blue and red leaves ), ros ette s potting, premature leaf drops , branch dieback, reduced
growth, and in extreme cas es , necros is ( i.e., cell death). The majority of publis hed
res earch on boron toxicity has focus ed on yield reduction in agricultural crops and not
the impact on plant appearance. However, a plant's appearance is advers ely impacted
at lower boron levels than thos e required to reduce crop yield. The appearance of
lands cape plant s pecies commonly found in California can be affected by boron,
chloride and s odium. Pos eidon Res ources , in s upport of its Carls bad project
commis s ioned a s tudy, which examined the likely impact of boron and chloride on local
horticulture ( Horts cience, 2005). In the s tudy, the following trees and plants were found
to be advers ely affected by boron levels of between 0.5 and 1 .0 mg/L and chloride
levels between 1 00 and 240 mg/L: Oranges , Lemons , Coas t Redwoods , the Chines e
holly, Junipers , Xylos ma, Camelias , the Crape Myrtle, the Gardenia, the Giant Bird of
Paradis e, Heavenly Bamboo, Hydrangea, Lily of the Nile, Philodendron, Photinia, Pink
Trumpet Vine, the common Ros e, Southern Magnolia, Violet trumpet vine, and
Wheeler's dwarf pittos porum. The s tudy reported that even at boron concentrations as
low as 0.5 ppm, there are plants that are s ens itive to boron, orchids being a well-known
example.
Finally, boron in drinking water als o res ults in elevated boron levels in recycled waters .
Boron is already an is s ue in recycled waters becaus e the common us e of s oaps and
other products , which contain boron and, as a res ult high levels of boron in recycled
waters can advers ely affect agriculture. For this reas on many of the State's Regional
Water Quality Boards recommend that boron in recycled water be maintained below 0.5
to 0.7 mg/L. High levels of boron in drinking water aggravate this problem as well. Us e
increments ( increas e from drinking water to recycled water) typically range between 0.2
and 0.3 mg/L.
The following is a s ummary of the cons iderations on water quality lis ted above:
TRUSSELL TECHNOLOGIES, INC. PAGE 3 OF 6
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--a 5.75
L_ 5.50
0 Redondo Beach
0 Mos s Landing
555 647.5 740 832.5 1
6.25
6.00
- ---4
1 85 277,5 370 462.5 92,5
ro 5.25
cp 5.00
a)
4.75
c 4.50
8 4.25
4.00
3,75
Need For ROSecond Pass Summary (continued)2/20 1 3
A. Boron, chloride and s odium are all at very high levels in s eawater and, as a res ult
they are als o unus ually high in des alinated water.
B. Virtually all large drinking water des alination plants cons tructed in the las t 20
years us e a s econd pas s in RO to bring thes e minerals to lower levels .
C. In order to avoid exceeding the CDPH NL for boron with a reas onable margin of
s afety, maximum boron levels in the des alinated water mus t be kept below 0.7
mg/L. To meet a maximum of 0.7 mg/L, the median level mus t be 0.5 mg/L.
D. Several plant s pecies commonly us ed in horticulture ( e.g. Junipers , Camelias ,
Crape Myrtle, Gardenias , Hydrangeas , Philodendron, the common Ros e, etc.)
begin to s how advers e effects to boron in the range of 0.5 and 0.75 mg/L.
E. When boron in drinking water ris es above 0.5 mg/L, recycled water cus tomers
may become concerned with the increas ed boron concentrations obs erved in the
recycled water.
Based on all these considerations, Trussell Technologies, Inc recommends that
California American Water set its goals for wholesome domestic drinking water at a
median boron level of 0.5 mg/L and maximumboron level of 0.7 mg/L and that these
goals be incorporated into the design of the Desalination Plant.
3 - ESTABLISHING THE LEVEL OF BORON IN SEAWATER
Seventy-s even boron meas urements were made during the s tudy CAW conducted at
Mos s Landing and a s imilar number were made as part of the Santa Cruz s tudy. An
even more comprehens ive databas e has been developed in Redondo Beach as part of
the s tudy being conducted by Wes t Bas in MWD. Figure 2 s hows a plot of the data
Days of Monitoring
Figure 2 — Res ults of boron monitoring at Mos s Landing and Redondo Beach
gathered at both locations . Except for the one meas urement of 6 mg/L at Mos s
Landing, thes e two data s ets don't appear s ignificantly different. Table 1 s ummarizes
minimum, median and maximum boron levels meas ured through all three projects .
TRUSSELL TECHNOLOGIES, INC.

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Need For ROSecond Pass Summary (continued)2/20 I 3
There are a lot of s imilarities in all thes e data, but it s eems that the maximum value at
Mos s Landing may be an artifact ( s ee figure 2).
Table 1 - Boron Levels Meas ured at Three Locations
Location Min Med Max
Santa Cruz Pilot - 4.4 5.4
Santa Cruz Intake - 4.4 5.0
Mos s Landing 3.9 4.8 6.1
Redondo Beach 4.0 4.7 5.3
For purposes of the Monterey Desalination Project, a median value of 4.8 mg/L and a
maximumvalue of 5.4 mg/L will be used as a basis of design.
4 - ESTABLISHING WHAT SWRO WILL DO WITH AND WITHOUT A SECOND PASS
The removal of boron by SWRO is influenced by a number of variables including:
membrane s election, the temperature and pH of the ocean ( and, hence with s eas on of
the year), the pres s ure us ed by the SWRO plant, the age of the membranes and the
details of energy recovery methods employed. Pilot tes ting at Mos s Landing s howed
that the boron in the product water tends to be about 1 .0 mg/L ( median value), ranging
between 0.8 and 1 .3 mg/L ( max. value), but, while thes e res ults do provide us eful
pers pective, they do not provide a direct as s es s ment of full-s cale performance. For
example, the pilot did not include energy recovery devices and it employed new
membranes . The mos t modern energy recovery devices introduce a s mall amount of
concentrate into the ups tream s ide of the RO, making full-s cale boron levels a bit wors e
than thos e experienced at pilot level. Moreover, the RO membranes thems elves
deteriorate over time and, as a res ult, the s alinity and boron concentrations of the
permeate they produce gradually increas e as well. Mos t des ign manuals for SWRO
recommend an allowance be made for an annual deterioration in permeate quality of 5
to 1 5 percent. As s uming a 1 0 percent increas e in boron pas s age each year, a
membrane that produces median and maximum boron levels of 1 .0 and 1 .3 mg/L in its
firs t year would be expected to produce median and maximum boron levels of 1 .5 and
1 .9 mg/L at the end of its five year life. This means that, if the Des alination Plant is built
with a s ingle pas s RO, the des alinated water would exceed California American Water's
propos ed goals ( Section 2, above) in the firs t year and, in the 5 th year, the des alinated
water would exceed the CDPH NL half the time.
There are now new high-boron-rejection membranes on the market, which perform
better than thos e us ed in the tes ting at Mos s Landing, but thes e membranes can cos t
more and require s ignificantly more additional energy to operate than does a partial
s econd pas s .
TRUSSELL TECHNOLOGIES, INC. PAGE 5 OF 6
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Need For ROSecond Pass Summary (continued)2/20 1 3
Bas ed on thes e cons iderations , it is concluded that a des alination plant with a s ingle
pas s RO would produce median boron level of 1 .0 mg/L during its firs t year of operation,
declining to a median level of more than 1 .5 mg/L near the end of its fifth year of
operation. The s ame s ingle pas s plant would produce a maximum of 1 .3 mg/L in its firs t
year of operation, declining to approximately 1 .9 mg/L near the end of its fifth year of
operation.
Thus it/s concluded that the performance of a desalination plant with a single pass RO
will not be consistent with the goals California American Water has set for a wholesome
domestic water supply.
References
CDPH 201 3 Drinking Water Notification Levels and Res pons e Levels : An Overview
( from CDPH Webs ite on Feb 25, 201 3).
http://www.cdph.ca.gov/certlic/drinkingwater/Documents /Notificationlevels /notificationlev
els .pdf
Horts cience, 2005, Evaluation of Propos es Irrigation Quality on Carls bad Lands capes ,
Prepared for Pos eidon Res ources Corp. by Horts cience, Inc. December 2005.
Coas tal Water Project Pilot Plant Report — Prepared by MWH for California American
Water — May 201 0
TRUSSELL TECHNOLOGIES, INC. PAGE 6 OF 6
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ATTACHMENT 4
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 275, Packet Page 295
Execution Copy — March 8, 201 3
AGREEMENT TO FORM THE
MONTEREY PENINSULA WATER SUPPLY PROJECT GOVERNANCE COMMITTEE
This AGREEMENT TO FORM THE MONTEREY PENINSULA WATER SUPPLY PROJECT
GOVERNANCE COMMITTEE ("Agreement") is made and entered into as of March 8, 201 3, by and
among the MONTEREY PENINSULA REGIONAL WATER AUTHORITY ("MPRWA"), the MONTEREY
PENINSULA WATER MANAGEMENT DISTRICT ("MPWMD"), the COUNTY OF MONTEREY
("County"), and the CALIFORNIA-AMERICAN WATER COMPANY ("Cal-Am"). The MPRWA, the
MPWMD, the County, and Cal-Am are s ometimes referred to individually herein as a "Party," and
collectively as the "Parties."
I. Formation of Governance Committee
Purs uant to the terms of this Agreement, the Parties hereby form the Monterey Penins ula Water Supply
Project Governance Committee ("Governance Committee") compris ed of repres entatives of the
MPRWA, the MPWMD, the County, and Cal-Am to ens ure efficient and effective public input into the
development and operation of the Monterey Penins ula Water Supply Project ("Project"). Cal-Am's entry
into this Agreement is expres s ly conditioned upon its legal obligations to abide by the orders and
decis ions of the California Public Utilities Commis s ion ("CPUC"). Therefore, s hould the CPUC order Cal-
Am not to participate in this Agreement, Cal-Am s hall be relieved of all obligations s et forth in this
Agreement and this Agreement may be terminated by Cal-Am upon s uch CPUC order. Further, if the
CPUC is s ues any order or decis ion that conflicts with any particular provis ion of this Agreement, Cal-Am
s hall be relieved of any and all obligations to abide by the conflicting provis ion of this Agreement.
Definitions
A. Application A.1 2-04-01 9. Application of California-American Water Company ( U21 0W)
for Approval of the Monterey Penins ula Water Supply Project and Authorization to Recover All Pres ent
and Future Cos ts in Rates , filed with the CPUC on or about April 23, 201 2.
B. ASR Infras tructure. The facilities us ed to inject into and extract potable water from the
Seas ide Groundwater Bas in, as des cribed in Application A.1 2-04-01 9. Thes e facilities will include the
Aquifer Storage and Recovery ( "ASR") wells and related appurtenances , the backflus h pipeline, the
recirculation pipeline and the ASR pipeline.
C. Brine Dis charge Infras tructure. Facilities located outs ide the des alination plant s ite that
are us ed to dis pos e of brine into the ocean. Thes e facilities will include the brine dis pos al pipeline, the
brine receiving s tation, any modification to the MRWPCA exis ting outfall, or a new outfall, or potentially
the us e of other exis ting outfalls with or without modifications .
D. Cal-Am Notification. The written notification from Cal-Am to the Chair of the
Governance Committee that a matter is ready for cons ideration, cons ultation, or action by the
Governance Committee as provided herein, and as further defined within Section V.B.
E. CEQA. The California Environmental Quality Act.
F. Contracts . One or more of the contracts between Cal-Am and a s elected contractor,
valued in exces s of $1 million, relating to the des ign and/or cons truction of the following facilities : ( 1 ) the
Des alination Infras tructure, ( 2) the Source Water Infras tructure, ( 3) the Brine Dis charge Infras tructure
contracted for by Cal-Am, ( 4) the Product Water Pipeline, ( 5) the Raw Water Pipeline; ( 6) the ASR
Infras tructure, and ( 7) the Terminal Res ervoir Infras tructure. Contracts for one or more of the facilities
identified above in this definition may be combined into a s ingle contract. In addition, the des ign and
cons truction of a s ingle facility identified above in this definition may be combined into a s ingle contract.
1
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G. CPCN. The Certificate of Public Convenience and Neces s ity, if ordered by the CPUC,
within Application A.1 2-04-01 9.
H. Des alination Infras tructure. Facilities located within the des alination plant s ite that are
us ed to create potable water from either an ocean s ource water, brackis h s ource water or a combination
thereof, and appurtenant facilities needed to dis pos e of brine to the Brine Dis charge Infras tructure,
dis pos e of was tewater ( i.e. proces s water and s anitary dis charge), and any needed facilities that may be
required to prevent export of native Salinas River Groundwater Bas in water.
Des alination Project. The combination of the Des alination Infras tructure, the Brine
Dis charge Infras tructure, the Source Water Infras tructure, the Product Water Pipeline, the Raw Water
Pipeline, and the Terminal Res ervoir Infras tructure.
J. GWR Project. Groundwater replenis hment project to be implemented by MRWPCA
and/or MPWMD which involves advanced treatment of was tewater and the injection of product
replenis hment water into the Seas ide Groundwater Bas in. This project includes facilities for the treatment,
conveyance, and injection of the product replenis hment water.
K. MRWPCA. The Monterey Regional Water Pollution Control Agency.
L. Product Water Pipeline. Facilities us ed to convey potable water from the Des alination
Infras tructure to the Terminal Res ervoir Infras tructure and to Cal-Am's exis ting dis tribution s ys tem at the
Eardley Pump Station.
M. Project. The Monterey Penins ula Water Supply Project as propos ed in Application
A.1 2-04-01 9, and as it may be modified by the CPCN is s ued in res pons e to that Application.
N. Public Entity Members of the Governance Committee. The MPRWA, the MPWMD,
and the County. Cal-Am is not a Public Entity Member of the Governance Committee.
0. Raw Water Pipeline. Facilities us ed to convey feedwater ( i.e., raw water) from the
Source Water Infras tructure to the Des alination Infras tructure.
P. Source Water Infras tructure. Wells and appurtenant facilities ( or alternative contingent
intake facilities ) that are us ed to extract and convey feedwater ( i.e., raw water) to the Raw Water Pipeline.
Thes e facilities will include the s lant intake wells and related appurtenances ( if permitted) as well as
alternate contingent intakes s uch as a Ranney Well or open ocean intake as s ubmitted by Cal-Am in its
contingency plans .
Q. Terminal Res ervoir Infras tructure. Facilities us ed to pump and s tore potable water in
s torage tanks eas t of the City of Seas ide along General Jim Moore Boulevard. Thes e facilities will include
the terminal res ervoir, terminal res ervoir pump s tation, overflow facilities and related appurtenance
needed to as s is t in the moving of water to and from the ASR Infras tructure, other ASR facilities , and
Product Water Pipeline.
R. Value Engineer. The profes s ional engineer( s ) to be retained by, or to cons ult with, Cal-
Am to perform a value engineering analys is for the Des alination Project to potentially lower the cos ts of,
or maximize the value of, the Des alination Project to Cal-Am's ratepayers , including matters concerning
the cos t effectivenes s , performance, reliability, quality, s afety, durability, effectivenes s , or other des irable
characteris tics of the Des alination Project.
The Parties acknowledge that the Project is s till under development and s everal as pects of the Project
may be modified as planning continues and as may be ordered by the CPUC. If neces s ary to addres s
future modifications to the Project, the Parties agree to cooperate in good faith to reach agreement to
amend the definitions s et forth herein as neces s ary to fulfill the purpos e of this Agreement.
2
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Members hip and Voting
Each of the Public Entity Members of the Governance Committee s hall be repres ented on the
Governance Committee by one elected official of s uch entity and one alternate who s hall als o be an
elected official. No individual pers on may be appointed as the primary or alternate repres entative of more
than one Party. If MPRWA ceas es to exis ts , then the cities that are members of the MPRWA at the time
of the MPRWA's termination s hall collectively choos e a "city repres entative' that will take the place of the
MPRWA repres entative on the Governance Committee. Cal Am s hall be repres ented by the Pres ident of
Cal-Am or the Pres ident's alternate, whom the Pres ident may des ignate to act on his or her behalf at
anytime. The Governance Committee s hall appoint a "Chair" and "Vice-Chair from the primary ( non-
alternate) elected officials appointed to the Governance Committee. Each of the Public Entity Members of
the Governance Committee s hall have a s ingle equal vote in decis ion-making. Cal-Am s hall not have a
vote for purpos es of the is s uance of decis ions or recommendations by the Governance Committee.
However, Cal-Am s hall, unles s it abs tains from doing s o, s tate its preference with res pect to any decis ion
or recommendation made by the Governance Committee ( the "Cal -Am Preference") at the time that any
decis ion or recommendation is made by the Governance Committee and the Cal-Am Preference s hall be
recorded within the meeting minutes together with a s ummary of any explanation provided by Cal-Am for
the Cal-Am Preference.
IV. Powers
A. Purpos e. The purpos e and function of the Governance Committee s hall be to: ( i)
cons ult with, advis e and, in s ome circums tances , provide direction to, Cal-Am concerning the des ign,
permitting, cons truction, operations , maintenance, repairs , and replacements of the components of the
Des alination Project; and ( ii) s erve as the entity which Cal-Am regularly updates as to Des alination
Project s tatus and is s ues . The members of the Governance Committee s hall diligently cons ider all
matters and caus e the Governance Committee to timely and promptly is s ue decis ions or
recommendations brought before it as provided purs uant to the terms of this Agreement.
B. Waiver of Action. Upon motion and affirmative vote of the Governance Committee
( purs uant to Section VII of this Agreement), the Governance Committee may choos e to waive its right to
is s ue a decis ion or recommendation with res pect to any matter for which the Governance Committee is
afforded s uch right herein. The purpos e of the Governance Committee's right to waive its right to make
any s pecified decis ion or recommendation herein is to empower the Governance Committee to avoid
is s uing any decis ion or recommendation, which, in its determination, would violate any law, unreas onably
delay efforts to develop water s upplies for the Monterey Penins ula, or otherwis e compromis e the public
interes t.
V. Governance Committee Action; Procedures
A. Matters Subject to Governance Committee Action. Matters for cons ideration,
cons ultation, decis ion, or recommendation by the Governance Committee s hall be divided among three
categories , with varying proces s es for cons ultation, recommendations , and/or decis ion-making, as
follows :
Category A: The Governance Committee makes the decis ion or recommendation
res pecting the matter after receipt of a written recommendation from Cal-Am, and upon is s uance
of its decis ion or recommendation, the Governance Committee provides a written explanation of
the reas ons for its decis ion to Cal-Am within s even ( 7) calendar days following its decis ion or
recommendation. Thereafter, Cal-Am will comply with the decis ion or recommendation is s ued by
the Governance Committee s o long as the decis ion or recommendation is cons is tent with the
terms of this Agreement. However, notwiths tanding any provis ion of this Agreement, for any
matter covered by Category A that relates to an action which may caus e either a direct phys ical
change in the environment, or a reas onably fores eeable indirect phys ical change in the
environment, as defined by s ection 21 065 of the California Public Res ources Code, no decis ion
or recommendation s hall be made by the Governance Committee as to the s ubject matter unles s
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Execution Copy — March 8, 201 3
and until s uch time as the action has been s ubject to review by an appropriate agency in
accordance with CEQA. The foregoing provis ion s hall not be cons trued as an agreement or
determination by or among any of the Parties that CEQA applies to any action of the Governance
Committee. This Agreement is its elf not a "project" as defined by s ection 1 5378 of the CEQA
Guidelines ( California Code of Regulations , Title 1 4, Chapter 3) becaus e it is an organizational
activity that will not res ult in direct or indirect phys ical changes in the environment and this
Agreement makes no commitment to any project.
Category B: The Governance Committee makes a recommendation res pecting the matter
after receipt of a written recommendation from Cal-Am. However, Cal-Am may determine, at its
s ole dis cretion, whether or not to follow the Governance Committee's recommendation, provided
that if Cal-Am choos es not to follow the recommendation, Cal-Am s hall provide a written
explanation of Cal-Am's reas ons for its decis ion not to follow the recommendation within ten ( 1 0)
calendar days following the is s uance of the Governance Committee's recommendation. Further,
s hould Cal-Am choos e not to follow the recommendation of the Governance Committee, then any
Party may rais e the is s ue for review by the CPUC during Cal-Am's next general rate cas e.
Category C: Cal-Am makes the decis ion res pecting the matter after receiving a
recommendation from the Governance Committee. Cal-Am need not is s ue a written explanation
for its decis ion, although s hould Cal-Am choos e not to follow the recommendation of the
Governance Committee, then any Party may rais e the is s ue for review by the CPUC during Cal-
Am's next general rate cas e.
B. Procedure for Cal-Am Notification. Whenever Cal-Am is pres ented with, or becomes
aware of, a matter that falls within any of the s ubjects identified herein for cons ideration, cons ultation,
decis ion or recommendation by the Governance Committee that is ripe for pres entation to the
Governance Committee, Cal-Am s hall, in writing, promptly notify the Chair of the Governance Committee
( "Cal-Am Notification"), who s hall s chedule the matter for cons ideration by the Governance Committee.
For purpos es of this Agreement, a matter s hall be deemed ripe for pres entation to the Governance
Committee at s uch time as either s pecified within the matters s et forth below, or for any matter for which
no s pecification is provided, Cal-Am s hall determine the time( s ) at which the matter is appropriate for
pres entation for cons ultation, decis ion, or recommendation by the Governance Committee cons is tent with
the purpos e of this Agreement. Unles s a different period is s pecified herein, for all matters for which a
decis ion or recommendation is to be made by the Governance Committee, the Governance Committee
s hall is s ue its decis ion or recommendation within ten ( 1 0) calendar days following receipt of the Cal-Am
Notification. If the Public Entity Members of the Governance Committee determine that the Governance
Committee requires more than the pres cribed time period provided for in this Agreement to act on any
matter that is the s ubject of the Cal-Am Notification, the Chair of the Governance Committee may, within
s even ( 7) calendar days following receipt of the Cal-Am Notification, reques t a reas onable extens ion of
time by written reques t to Cal-Am, and Cal-Am and the Public Entity Members of the Governance
Committee s hall cooperate in good faith to agree upon and s et a reas onable alternative deadline for
action on the s ubject matter to the extent that s uch an extens ion would not unreas onably delay the
Project, not unreas onably delay required CPUC filings by Cal-Am, or otherwis e compromis e the public
interes t. So as to avoid undue delay, if the Governance Committee fails to make any decis ion or provide
any recommendation upon any matter brought before it ( including all Category A decis ions ) on or before
the expiration of the pres cribed period for action by the Governance Committee ( or the period of any
extens ion agreed to by Cal-Am), or if the Governance Committee affirmatively waives its right to make a
decis ion or recommendation res pecting a matter before it, then Cal-Am may make the s ubject decis ion
without a decis ion or recommendation, as applicable, by the Governance Committee.
C. Cal-Am Status Pres entations and Governance Committee Recommendations
Thereon. At each meeting of the Governance Committee, Cal-Am s hall provide a report as to the s tatus
of the Project, which s hall be pres ented by one or more individuals knowledgeable about the material
as pects of the Project. Upon reas onable advance written notice, the Governance Committee may reques t
that Cal-Am include within its s tatus pres entation to the Governance Committee the s tatus of any matter
that is s et forth in any of the three categories for decis ion, recommendation, or cons ultation es tablis hed
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below, together with an explanation of any pending or s oon-to-be-pending decis ions or options
concerning the s ubject matter. The Governance Committee may is s ue, in writing, any recommendation
concerning a s ubject matter included within Cal-Am's pres entation. Cal-Am may determine, at its s ole
dis cretion, whether or not to follow the recommendation, provided that if Cal-Am choos es not to follow the
recommendation and the s ubject matter is a matter covered by either Category A or Category B, Cal-Am
s hall, within ten ( 1 0) calendar days following is s uance of the Governance Committee's recommendation,
provide a written explanation of the reas on( s ) for Cal-Am's decis ion not to follow the recommendation. If
the s ubject matter is a matter covered by Category C or is not s et forth within any of the three categories
s et forth below, Cal-Am need not is s ue a written explanation of Cal-Am's reas ons for its decis ion not to
follow the recommendation.
D. Categories for Matters Subject to Governance Committee Action. Matters for
cons ideration, cons ultation, decis ion, or recommendation by the Governance Committee s hall be divided
among the following three categories as follows :
Category A
1 . This matter concerns the "GWR Recommendation," which s pecifically is whether
Cal-Am s hall: ( i) purs ue a water purchas e agreement, acceptable to Cal-Am, for the purchas e of water
from the GWR Project, and cons equently Cal-Am s hall develop s maller Des alination Infras tructure with a
capacity of approximately 6.4 MGD ( or as s pecified in the CPCN); or ( ii) forgo the purs uit of a water
purchas e agreement for the GWR Project, and cons equently Cal-Am s hall develop larger Des alination
Infras tructure with a capacity of approximately 9.6 MGD ( or as s pecified in the CPCN). If the GWR
Recommendation becomes ripe for recommendation, as s pecified in the paragraph below, before a
CPCN is is s ued upon Application A.1 2-04-01 9, the Governance Committee s hall not is s ue any binding
recommendation concerning the GWR Recommendation. If the GWR Recommendation becomes ripe for
recommendation, as s pecified in the paragraph below, after a CPCN is is s ued upon Application A.1 2-04-
01 9, the Governance Committee s hall decide whether to recommend that Cal-Am purs ue the GWR
Project or not ( as s et forth above), which recommendation s hall then be s ubject to CPUC approval or
rejection purs uant to the procedure s pecified herein. The Governance Committee s hall make this
recommendation bas ed upon criteria to be mutually-agreed to by the Parties , negotiating in good-faith,
after the execution of this Agreement.
The GWR Recommendation s hall become ripe for a recommendation to be made by the Governance
Committee ( i) no earlier than the date Cal-Am accepts the 30%Des ign from the contractor retained for
the des ign of the Des alination Infras tructure, ( ii) no later than that date upon which Cal-Am is prepared to
is s ue a notice to proceed to a contractor to commence cons truction of the Des alination Infras tructure, ( iii)
after the CEQA lead agency has certified the environmental impact report for the GWR Project and
approved the GWR Project, and ( iv) while there is s ufficient time for the GWR Recommendation to be
made and for the CPUC to review and approve that recommendation, without otherwis e delaying the
Project. The GWR Recommendation s hall be made by the Governance Committee, in writing with an
explanation of the reas ons for its decis ion, within s ixty ( 60) days following receipt of the Cal-Am
Notification concerning this matter. The recommendation is s ued by the Governance Committee s hall be
s ubmitted by Cal-Am to the CPUC for approval or rejection purs uant to a Tier 2 Advice Letter ( or at the
direction of the CPUC, an alternate form of s ubmis s ion) within ten ( 1 0) calendar days following is s uance
of the GWR Recommendation by the Governance Committee for the CPUC's review and approval. To
avoid undue delay of the Project, and notwiths tanding the ripenes s of the GWR Recommendation as
des cribed above, if on the date that is ninety ( 90) days prior to the date upon which Cal-Am anticipates
being prepared to is s ue a notice to proceed to a contractor to commence cons truction of the Des alination
Infras tructure, no public agency has is s ued a res olution or order that declares that it is prepared to is s ue
a notice to proceed to a contractor to commence cons truction of the GWR Project, then Cal-Am may
make the decis ion with res pect to the GWR Recommendation, in its s ole dis cretion, without s oliciting or
obtaining the GWR Recommendation from the Governance Committee.
2. The Governance Committee s hall s elect a Value Engineer( s ) to facilitate and
report on the propos ed value engineering for the Des alination Project, with cons ideration given to any
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recommended engineer s ubmitted by any member of the Governance Committee. Cal-Am s hall conduct
the procurement for the Value Engineer and, cons is tent with the proces s es s et forth in Categories B( 1 ),
B( 2) and 0( 2) relating to Contracts , s eek recommendations from the Governance Committee for the
contract between Cal-Am and the Value Engineer. After reviewing the res ults of the procurement proces s ,
the Governance Committee s hall decide which engineer is to be retained by Cal-Am as the Value
Engineer for the Des alination Project. This matter s hall be ripe for decis ion before Cal-Am accepts the
30%Des ign from the contractor retained for the des ign of the Des alination Infras tructure, or at any other
time that Cal-Am intends to retain a Value Engineer for any other infras tructure cons tructed as a
component of the Des alination Project.
3. Subs equent to the is s uance of the CPCN and s ubs equent to the s election of any
des ign-build contractor( s ) for the Des alination Infras tructure, the Governance Committee may is s ue
decis ions concerning architectural renderings for the Des alination Project. The Governance Committee
s hall be pres ented with architectural renderings for decis ions regarding the s ame when s uch architectural
renderings are complete and upon any s ubs equent modifications thereto. The Governance Committee
may als o, in its dis cretion, appoint a repres entative to cons ult with Cal-Am regarding other external
features or aes thetics of the Des alination Project. Upon a determination of the Governance Committee or
its repres entative, the Governance Committee's repres entative and Cal-Am s hall pres ent to the
Governance Committee options pertaining to the Des alination Project's external feature or aes thetics ,
upon which the Governance Committee may decide which option to purs ue. Notwiths tanding any
provis ion of this paragraph, the Governance Committee may not is s ue a binding decis ion concerning the
Des alination Infras tructure's architectural renderings , or the Des alination Project's external features or
aes thetics , if the decis ion would in the opinion of the des ign-build contractor, increas e the capital or
operational cos t of the Des alination Infras tructure.
4. Subs equent to the is s uance of the CPCN, the Governance Committee may is s ue
decis ions concerning procurement of alternative ( non-Pacific Gas & Electric) energy s upplies for the
Des alination Infras tructure, including but not limited to was te-to-energy, s o long as s uch decis ions res ult
in lowering the Des alination Infras tructure's es timated unit price for power. This matter s hall be ripe for
decis ion at any time a formal written propos al concerning alternative power is pres ented by one or more
of the Parties for cons ideration.
Category B
1 . Prior to the is s uance of a reques t for qualifications , reques t for propos als , or
reques t for bids , as applicable, relating to the procurement of a Contract, the Governance Committee may
recommend qualifications and s election criteria for s uch Contract.
2. Prior to the execution of any Contract not executed on or before the date that is
thirty ( 30) calendar days after the effective date of this Agreement, and upon pres entation and
recommendation by Cal-Am to the Governance Committee after Cal-Am has reviewed and evaluated
propos als or bids , as applicable, and negotiated with the contractor a Contract that, in the opinion of Cal-
Am, is ready for execution by and between Cal-Am and the contractor, the Governance Committee may
recommend which contractor s hould be retained under the Contract, and is s ue any recommendations
concerning the terms of the final Contract. When pres enting a Contract to the Governance Committee for
its cons ideration and recommendation, Cal-Am s hall provide to the Governance Committee a copy of all
res pons ive propos als or bids received for the pertinent work, except for any proprietary information
provided by contractors s ubmitting res pons ive propos als or bids , together with a written des cription of the
proces s Cal-Am undertook to s elect a recommended Contractor, a s ummary of the cons iderations that
Cal-Am deems pertinent to s upport its recommendation, and any other information that Cal-Am believes
will as s is t the Governance Committee in its review of the recommended Contract and contractor.
3. The Governance Committee may review and is s ue recommendations concerning
major changes to the Des alination Project at key s tages of the des ign proces s , including:
• Bas is of Des ign
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• 30%Des ign
• 60%Des ign
• 90%Des ign, and
• Final Des ign
As us ed in this paragraph, major changes to the Project s hall include changes caus ing an increas e or
decreas e in cos ts of the Des alination Project that exceed $1 million.
4. The Governance Committee may is s ue recommendations concerning the
es tablis hment of a community outreach program.
5. The Governance Committee may recommend the Des alination Project's
aes thetic attributes and des ign cons is tent with community values if not covered by Category A( 3) above;
6. The Governance Committee may coordinate with Cal-Am and recommend
s olutions to is s ues concerning the us e of the Brine Dis charge Infras tructure;
7. The Governance Committee may review and recommend whether to adopt any
value engineering recommendations is s ued by the Value Engineer;
8. The Governance Committee may review and recommend whether to approve
any change order pertaining to any component or components of the Des alination Project, if the change
order exceeds $1 million.
Category C
1 Cal-Am s hall monitor the des ign, engineering, and permitting of all elements of
the Des alination Project, and report on s uch monitoring to the Governance Committee as des cribed in
Section VI. The Governance Committee s hall dis cus s Cal-Am's report and may is s ue recommendations
to Cal-Am pertaining to the Des alination Project;
2. Prior to Cal-Am's commencement of negotiations with a s elected contractor
relating to a Contract, the Governance Committee may review and is s ue recommendations concerning
contract terms relating to s uch Contract;
3. The Governance Committee may review and is s ue recommendations concerning
the preparation and quarterly update of an overall cons truction budget for the Des alination Project;
4. The Governance Committee may review and is s ue recommendations concerning
a plan for acceptance tes ting, including follow-up reporting, for the Des alination Project;
5. The Governance Committee may annually review and is s ue recommendations
concerning the Des alination Project operations and maintenance budget and rate impacts ;
6. The Governance Committee may review and is s ue recommendations to Cal-Am
with res pect to local and regional permit requirements ; and
7. The Governance Committee may review and is s ue recommendations concerning
the preparation of quarterly progres s reports during major des ign miles tones ( i.e., 30%des ign, 60%
des ign, 90%des ign, and final des ign) and information on any material challenges to the Project des ign.
E. Additional Matters . If agreed unanimous ly by all members of the Governance
Committee, including Cal-Am, additional matters not provided for herein may be added to Category A for
decis ion or recommendation by the Governance Committee or to Category B for recommendation from
the Governance Committee. Additional matters may als o be added to Category C for recommendation
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from the Governance Committee upon affirmative vote of the Governance Committee unles s Cal-Am
determines that the addition of the matter to Category C would unreas onably delay the Project or
otherwis e compromis e the public interes t. If Cal-Am determines that a matter affirmed by the Governance
Committee for addition to Category C s hould not be s o added, Cal-Am s hall is s ue a written explanation to
the Governance Committee within ten ( 1 0) calendar days following the Governance Committee's vote to
add the matter to Category C that explains the reas ons s upporting Cal-Am's determination.
VI. Meetings and Action of the Governance Committee; Agendas and Minu tes
A. Meetings . Governance Committee meetings s hall be conducted in compliance with the
Ralph M. Brown Act ( Government Code s ections 54950, et s eq.). The firs t meeting of the Governance
Committee s hall be s cheduled by the primary repres entative of the MPWMD, and that repres entative s hall
pres ide over the firs t meeting at which a Chair and Vice-Chair s hall be s elected. Thereafter, the Chair, or
in his or her abs ence, the Vice-Chair, s hall s chedule and pres ide over all meetings of the Governance
Committee. During the pre-cons truction and cons truction phas es of the Des alination Project, regular
meetings of the Governance Committee s hall be s cheduled by the Chair, or in his or her abs ence, the
Vice-Chair, and held on a monthly bas is . During the operational phas e of the Des alination Project, regular
meetings of the Governance Committee s hall be s cheduled by the Chair, or in his or her abs ence, the
Vice-Chair, and held on a quarterly bas is for the firs t two years of the Des alination Project's operation and
s emi-annually thereafter. Special meetings of the Governance Committee, including for purpos es of
res ponding to a Cal-Am Notification, may be called by the Chair, or in his or her abs ence, the Vice-Chair,
or by any member of the Governance Committee upon reques t of the Chair, or in his or her abs ence, the
Vice-Chair.
B. Action by the Governance Committee. All decis ions and recommendations of the
Governance Committee is s ued to Cal-Am s hall be in writing, s igned by the Chair or Vice-Chair. All other
actions of the Governance Committee s hall be by motion recorded in written minutes .
C. Agendas , Corres pondence, and Minutes . Agendas , corres pondence, and minutes of
the meetings of the Governance Committee s hall be taken, maintained, and dis tributed by a des ignated
s taff member of the MPWMD.
VII. Qu oru m and Affirmative Action of the Governance Committee
To cons titute a quorum at all meetings of the Governance Committee for the trans action of bus ines s , the
primary or alternate elected official repres entative of at leas t three of the Parties mus t be pres ent, in
pers on. Action by the Governance Committee s hall require the affirmative vote of at leas t two of the three
Public Entity Members of the Governance Committee.
VIII. Su bmission of Project Information to the Governance Committee; Project Inspections
Concurrent with Cal-Am's s ubmis s ion of any documents concerning the Project to the CPUC, Cal-Am
s hall provide a copy of the documents ( in paper or electronic form) to the Chair of the Governance
Committee. The Chair may notice a meeting on his or her own initiative, or upon the reques t of any
member of the Governance Committee, to review any financial matter addres s ed by the documents . Cal-
Am, upon reques t of the Chair of the Governance Committee, s hall be afforded an opportunity to provide
a pres entation or any oral explanation relating to the noticed financial matter. Further, upon reas onable
advanced, written notice and s ubject to s afety and s ecurity concerns and precautions as determined in
good faith by Cal-Am, any member( s ) of the Governance Committee may ins pect any phys ical facility or
s tructure cons tructed or being cons tructed as an element of the Des alination Project, and Cal-Am s hall
provide an employee, cons ultant, or other repres entative, who is knowledgeable of the as pects and
elements of the phys ical facility or s tructure, to accompany the member( s ) of the Governance Committee
during the ins pection.
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IX. Term and Termination of Agreement
This Agreement s hall continue in effect until the earlier of ( 1 ) the date that is forty ( 40) years after the
effective date of this Agreement ( March 8, 2053), or ( 2) the date that Cal-Am ceas es to operate the
Des alination Project, the earlier s uch date to be known as the "Expiration Date." Further, this Agreement
may be terminated, prior to the Expiration Date, as follows : ( 1 ) by Cal-Am, following the is s uance of an
order from the CPUC ordering Cal-Am not to participate in this Agreement, as provided for in Section I
above; ( 2) by Cal-Am, if the CPUC denies or res cinds Application A.1 2-04-01 9 or denies Cal-Am's
development of, or s ubs equently res cinds Cal-Am's authority to develop, the Des alination Project; or ( 3)
by the written agreement of no les s than three of the four members of the Governance Committee. If, on
September 8, 2052, the Des alination Project is s till being operated by Cal-Am, the Parties s hall, within
thirty days thereafter, meet and commence negotiations in good faith to s eek a renewal of this
Agreement, upon mutually acceptable terms , to provide continued public overs ight and input concerning
the operation, maintenance, repair, modification, and/or replacement of the Des alination Project after the
Expiration Date. If this Agreement is terminated by Cal-Am as a res ult of a CPUC order denying or
res cinding Application A.1 2-04-01 9 or Cal-Am's authority to develop the Des alination Project, but Cal-Am
intends to s eek CPUC approval to develop a s ubs titute project to provide water s upplies for its Monterey
Dis trict, then the Parties s hall meet and negotiate in good faith to s eek agreement, upon mutually
acceptable terms , for a s ubs titute agreement to provide public overs ight and input concerning the des ign,
permitting, cons truction, operation, maintenance, repair, modification, and/or replacement of s uch
s ubs titute project.
X. Mis cellaneous
A. Further As s urances . The Parties s hall execute s uch further documents and do any
and all s uch further things as may be neces s ary to implement and carry out the intent of this Agreement.
B. Cons truction. The provis ions of this Agreement s hall be liberally cons trued to
effectuate its purpos es . The language of this Agreement s hall be cons trued s imply according to its plain
meaning and s hall not be cons trued for or agains t any Party, as each Party has participated in the
drafting of this Agreement and had the opportunity to have their couns el review it.
C.
Choice of Law. This Agreement s hall be governed and cons trued under the laws of the
State of California, with venue proper only in Monterey County.
D. Severability. If any term or provis ion of this Agreement is determined to be illegal,
unenforceable, or invalid in whole or in part for any reas on, s uch illegal, unenforceable, or invalid
provis ion or part thereof, s hall be s tricken from this Agreement, and s uch provis ion s hall not affect the
legality, enforceability, or validity of the remainder of this Agreement. If any provis ion or part of this
Agreement is s tricken in accordance with the provis ions of this s ection, then the s tricken provis ion s hall
be replaced, to the extent pos s ible and as agreed to by the Parties , with a legal, enforceable and valid
provis ion that is as s imilar in content to the s tricken provis ion as is legally pos s ible.
E. Dis pute Res olution. If a dis pute aris es between two or more of the Parties relating to
this Agreement, or the rights and obligations aris ing therefrom, and if the Parties in dis pute are unable to
res olve the controvers y through informal means , the Parties in dis pute may, upon mutual agreement,
s ubmit the dis pute to mediation, upon terms mutually agreed to by the Parties in dis pute. Any Party not in
dis pute as to the dis puted matter s hall be afforded an opportunity to participate in the mediation. In
addition, if the Parties in dis pute are unable to res olve the controvers y through mediation, the Parties in
dis pute may, upon mutual agreement, s ubmit the dis pute to binding arbitration, upon terms mutually
agreed to by the Parties in dis pute. Any Party not in dis pute as to the dis puted matter may, upon the
mutual agreement of the Parties in dis pute, be invited to participate in any binding arbitration.
F. Members to Bear their Own Cos ts . Each Party s hall bear its own cos ts relating to the
rights and obligations of each Party aris ing from this Agreement and its participation in the Governance
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Committee and, therefore, no Party s hall be entitled to any reimburs ement from another Party as a res ult
of any provis ion of this Agreement.
G. Notices and Communication. Any notice or communication hereunder s hall be deemed
s ufficient if given by one Party to another Party or Parties , as appropriate, in writing and either ( 1 )
delivered in pers on, ( 2) trans mitted by electronic mail and acknowledgment of receipt is made by the
receiving Party( ies ), ( 3) depos ited in the United States mail in a s ealed envelope, certified and with
pos tage and pos tal charges prepaid, or ( 4) delivered by a nationally-recognized overnight delivery courier
s ervice, and addres s ed as follows :
If to Cal-Am:
with a copy to:
If to the MPRWA:
with copies to:
If to the MPWMD:
California-American Water Company
Attn: Robert MacLean
Pres ident
1 033 B Avenue, Suite 200
Coronado, CA 921 1 8
Email: robert.maclean@amwater.com
California-American Water Company
Attn: Anthony Ceras uolo
Vice Pres ident - Legal
1 033 B Avenue, Suite 200
Coronado, CA 921 1 8
Email: aceras uoloamwater.com
Monterey Penins ula Regional Water Authority
Attn: Les ley Milton
Clerk
City of Monterey
351 Madis on St. Monterey, CA 93940
miltonmonterey.orq
Monterey Penins ula Regional Water Authority
Attn: Donald Freeman
General Couns el
Wes t Side of San Carlos & 8th
P.O. Box 805
Carmel, CA 93921
cityatty@ix.netcom.com
Monterey Penins ula Regional Water Authority
Attn: Rus s ell McGlothlin
Special Couns el
21 E. Carrillo St.,
Santa Barbara, CA 931 01
rmcglothlin@bhfs .com
Monterey Penins ula Water Management Dis trict
Attn: David J. Stoldt
General Manager
5 Harris Court — Bldg G
Monterey, CA 93940
Email: ds toldt@mpwmd.net
with a copy to: Monterey Penins ula Water Management Dis trict
Attn: David C. Laredo
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General Couns el
5 Harris Court — Bldg G
Monterey, CA 93940
davelaredolaw.net
If to the County:
with a copy to:
County of Monterey Board of Supervis ors
C/O Clerk of the Board of Supervis ors
1 68 Wes t Alis al Street
1 St Floor
Salinas , CA, 93901
1 1 2-clerkoftheboardeveryoneco.monterev.ca.us
Monterey County Couns el
Attn: Charles J. McKee
1 68 Wes t Alis al Street
3rd Floor
Salinas , CA 93901
mckeecj@co.monterey.ca.us
or to s uch other addres s or to s uch other pers on as each Party s hall have las t des ignated for
receipt of notices purs uant to this Agreement. Where this Agreement provides for written notices or
communication from Cal-Am to the Governance Committee, s uch written notice, explanation, or
communication s hall be directed to the Chair of the Governance Committee at the addres s s et forth
above for notices to the public entity from which the Chair is appointed, and when provided s hall be
deemed provided to all Public Entity Members of the Governance Committee. The effective date of any
written notice, explanation, or communication s hall be the earlier of the date of actual receipt,
acknowledgment of receipt, or three days following depos it in the United States mail.
H. Succes s ors and As s igns . This Agreement s hall be binding on and s hall inure to the
benefit of the Parties and their res pective legal repres entatives , s ucces s ors , and as s igns .
No Third Party Rights . Nothing in this Agreement, whether expres s or implied, is
intended to confer any rights or remedies under or by reas on of this Agreement on any pers ons other
than the Parties to this Agreement and their res pective s ucces s ors and as s igns , nor s hall any provis ion
in this Agreement give any third pers ons any right of s ubrogation or action over or agains t any Party to
this Agreement.
J. Signatures - Counterparts . This Agreement may be executed in two or more
counterparts , each of which s hall be deemed an original, but all of which together s hall cons titute one
and the s ame ins trument. The Parties authorize each other to detach and combine original s ignature
pages and cons olidate them into a s ingle identical original. Any of s uch completely executed
counterparts s hall be s ufficient proof of this Agreement.
K. Effective Date. This Agreement s hall take effect on date firs t s tated above.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date firs t s tated above.
[signature page follows]
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California-American Water Company

By:
Le,x7t
MZ --------
Robert MacLean,
Pres ident
Monterey Penins ula Regional Water Authority By:
Chuck Della Sala
Pres ident
Agreed as to form:
By:
Donald Freeman
General Couns el
Monterey Penins ula Water Management Dis trict By:
David Pendergras s
Chair
Agreed as to form:
By:
David Laredo
General Couns el
County of Monterey By:
Fernando Armenta
Chair of the Board of Supervis ors
Agreed as to form:
By:
Charles McKee
County Couns el
1 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 287, Packet Page 307
By;
Donal Freeman
General Couns el
Execution Copy — March 8, 201 3
California-American Water Company

Robert MacLean,
Pres ident
Monterey Penins ula Regional Water Authority By: ‘a4...u-4- • 1 =A-
Chuck Della Sala
Pres ident
Agreed as to form:
Monterey Penins ula Water Management Dis trict By:
David Pendergras s
Chair
Agreed as to form:
By:
David Laredo
General Couns el
County of Monterey By.
Fernando Armenta
Chair of the Board of Supervis ors
Agreed as to form:
By:
Charles McKee
County Couns el
1 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 288, Packet Page 308
By:
Chuck Della Sala
Pres ident
Agreed as to form:
By:
Donald Freeman
General Couns el
By:
David Ponder
Chair
Agreed for 1 :
By
aredo .
ral Couns el
Execution Copy - March 8, 201 3
California-American Water Company

By: .-4)-t-1 4
Robert MacLean,
Pres ident
Monterey Penins ula Regional Water Authority
Monterey Penins ula Water Management Dis trict
County of Monterey
By:
Fernando Armenta
Chair of the Board of Supervis ors
Agreed as to form:
• By:
Charles McKee
County Couns el
1 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 289, Packet Page 309
Agreed as t form:
arles McKee
County Couns el
Execution Copy — March 8, 201 3
California-American Water Company By: ( ..
Robert MacLean,
Pres ident
s iZ...........___...

Monterey Penins ula Regional Water Authority By:
Chuck Della Sala
Pres ident
Agreed as to form:
By:
Donald Freeman
General Couns el
Monterey Penins ula Water Management Dis trict By:
David Pendergras s
Chair
Agreed as to form:
By:
David Laredo
General Couns el
County of Monterey By:,—__...
Fernando Armenta
Chair of the Board of Supervis ors
1 2
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 290, Packet Page 310
ATTACHMENT 5
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 291, Packet Page 311
12.415 afy
12,348 afy
50 psi
421
418 kw
5,587 afy
5 556 afy
970 . psi
3_ 483 km
3.465 kw
22..2 MGD 16,386 gpm
22.0 MGD 15.302 gpm
116 ft
4.416 hrs 1,857.322 kwh
4_ 344 hrs 1.317,623 kwh
10.0 MGD 6.924 gpm
9_ 9 MD 6,886 gpm
2.125 ft
4,416 hrs 15.382,763 kwh
4,344 hrs 15,049.918 kwh
5 4$8,545,
$14.0,525
$1,541,895
$4,460,498
;- G
PG E Avera e Power Rates
34 'Facility
35 iFeedwater Weis
36 P ivr ntake P- S
37 Des al Plant / DWPS
38
0.1 57 $ C.1 1 .0
C 1 1 3 S
"impr; -. • .
Je- -
44- iSeauncia P-S
Su mmer Winter
0,D7709
0.07709
0.07709
C.2.1 0
D...1 .1
0.1 1 0
Attachment 5 — Details for Svindland Rebu ttal Testimony Qu estion 33.
E92
Filtrate Forwardmg =g_ igno (First Pass)
97
98
99
ICY
Reverse Osmosis Process
V
iltrate Forwarding Pu mp (First Pass(
Su mmer Annu aiFow (Apped-Ist Pass)
V,e4lter Annu s: F:evr (Appled-Ist Pu ss)
Lift
Su mmer 561 hp
Winter 558 hp
High Pressu re Pu mp (First Pass(
Su mmer Annu & Permeate Produ cton list Pass)
W;nter Annu a: Permeate Produ ction list Pass)
Lift
Su mmer 4.645 hp
Winter 4,619 hp
Cell References for Steps 1 through 8
Cell References for Power Cost in Step 7
MPRWA Meeting, 3/14/2013 , Ìtem No. 7., Ìtem Page 292, Packet Page 312