M I N U TE S MONTEREY PENINSULA REGIONAL WATER AUTHORITY (MPRWA) Special Meeting 7:00 PM, Thursday, January 31, 2013 FEW

MEMORIAL HALL OF RECORDS MONTEREY, CALIFORNIA Directors Present: Directors Absent: Staff Present: ROLL CALL President Della Sala called the meeting to order at 7:01 p.m. with all Directors present. PLEDGE OF ALLEGIANCE PUBLIC COMMENTS President Della Sala invited public comment for items not on the agenda. Nelson Vega commended Mayor Burnett for an outstanding job making contact with influential people and working for the benefit of the Authority. He encouraged the public to attend a Monterey Peninsula Water Management District special meeting next week and then he requested the Authority to petition the State Legislature for an extension for the cease and desist order. Dan Turner said it was obvious that the Authority is leaning toward the Cal Am project and understood the position because it appears they can deliver but cautioned the authority because he thinks the slant wells have a high chance of resulting in a lawsuit, which Cal am would likely loose. He then spoke against the history of Cal Am projects. Anthony Tersol from the Surfrider Foundation read an excerpt from a letter the Monterey Regional Water Pollution Control Agency delivered to the California Public Utilities Commission which indicated there is ample water physically available and that over the last 13 years over 10,600 acre feet of water was treated and discharged in the outfall. He encouraged the consideration of utilizing water that is treated and discharged instead of desalination. President Della Sala reminded the audience that public comments related to an agendized item should be delivered when the Authority opens public comment for that specific item. Alan Haffa questioned the water supply governance contract. He expressed concern the Authority may be sacrificing the ability to govern in the future with the proposed document and encouraged each Director to seek legal advice from the City they represent before final adoption of the document. Darby Moss Worth spoke in support of a public water option. She thinks the Public has been predominantly vocal supporting a public option and encouraged the Authority to listen. Ellison Ferrall spoke of his experience of financing startup and entrepreneurs. He then spoke in support of innovation and encouraged the Authority to think outside of typical methods and practices. He said innovation and marketing is an investment, as well as cost. Trust innovation and set the standard. Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None Legal Counsel Freeman and McLaughlin, Executive Director, Clerk to the Authority

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Steve Ecklund spoke in support of publicly owned water and against Cal Am's because they are a for profit company. George Riley spoke representing Citizens for Public Water commending the Directors for putting together a package that might work and he hopes Cal Am will recognize and accept the proposal. He expressed concern that that Cal am has too many hurdles that are not addressed including litigation and water rights and the fact Cal am has not agreed to the conditions or the numbers presented in the SPI report. He spoke to the fact he has and will continue to advocate for public ownership and lowest cost therefore his efforts going forward will be to focus on an alternative option and will work with the Water Management District to try to make the alternative project a viable project. With no further requests to speak President Della Sala closed public comment. AGENDA ITEMS 1. Approve Budget Adjustment Necessary to Fund Separation Processes Inc. and Kris Helm Consulting to Prepare Testimony To Be Submitted To the California Public Utilities Commission on February 22, 2013 and Appear at Subsequent Hearings in April. (CPUC A 12-04-019) Executive Director Reichmuth reported that staff has been compiling comments for the testimony to be submitted to the CPUC by February 22, 2013. However, in order to facilitate the written comments for the testimony, staff is requesting the authority approve an additional contract with the Consultants for their expertise and experience. Staff recommends using money from the contingency line item from the amended budgeted for FY12-13 therefore no additional funds will be requested from the member cities. Member Reichmuth answered questions from the Directors. Mayor Burnett indicated that in addition to SPI Consultants and Kris Helm Legal Counsel Russ McLaughlin and Ron Larkin will also be participating, and funds will be used from the previously approved budget. Director Edelen questioned the testimony process to understand the need and the cost for staffing. Russ McLaughlin clarified that no one is attending the testimony hearing on February 22, 2013 but that comments submitted will be written testimony. Later in April, there will be an evidentially hearing before the CPUC where witnesses that provide written testimony will be subject to cross examination. President Della Sala opened the item for public comment and with no requests to speak closed public comment. Director Rubio spoke in support of sending the necessary professionals indicating the weight of the expertise will have an effect that will be evident to the hearing and does not think this is a waste of money. Director Pendergrass agreed with Director Rubio's comments. On a motion by Director Kampe seconded by Director Rubio and carried by the following vote, the Monterey Peninsula Regional Water Authority amended the FY 2012-13 approved budget by a maximum of $15,000 as necessary to Fund Separation Processes Inc. and Kris Helm Consulting to Prepare Testimony To Be Submitted To the California Public Utilities Commission on February 22, 2013 and Appear at Subsequent Hearings in April. (CPUC A 12-04-019): AYES: NOES: ABSENT: ABSTAIN: 6 0 0 0 DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala DIRECTORS: None DIRECTORS: None DIRECTORS: None Monterey Peninsula Regional Water Authority Special Meeting Minutes - Thursday, January 31, 2013 2

MPRWA Minutes RECUSED: 2. 0 DIRECTORS: None

Thursday, January 31, 2013

Discuss Status of Desalination Project Proposals and Provide Direction to Staff for Submission of Testimony to the California Public Utilities Commission on February 22, 2013 (CPUC A 1204-019) Executive Director Reichmuth presented the report and projected the staff report on the screen for the benefit of the public. He spoke to the fact there is only one application before the CPUC at this time and reiterated that the Authority policy has been to consider all projects equally, but suggested that the Directors are able to make a preferred suggestion, which would not preclude the other projects. He indicated the Staff recommendation is that the Authority can conditionally support the Cal Am Monterey Peninsula Water Supply project. He then referenced justifications for the recommendation, which are listed in the agenda documents including a cost sensitivity evaluation and the decision matrix which were used to draft the deliberative document as supporting materials. Mr. Reichmuth requested the Authority to provide guidance from the Directors to be able to draft the testimony to be submitted and asked for comments regarding the enclosed Deliberative Document. Legal Counsel Freeman presented the history of the Authority, the water shortage issue, and the reason for which this decision must be made. He clarified the process for the submission of testimony and why the Cal Am project is the only project being regulated by the CPUC. He then requested the Authority, based on what information is available today, to direct staff regarding information and direction to include within the testimony document. Staff answered questions from the Directors. Mayor Burnett spoke to Director Pendergrass question regarding the contingency plans and the technical and legal risk over the slant wells. The case was made to the CPUC in December and the language included in the document requires Cal Am to fully develop a contingency plan that does not involve wells in the Salinas basin the event that the slant wells are deemed technologically or legally infeasible. Director Rubio questioned the Authoritys ability to require accountability on the proposed policy document and questioned if the Authority would change the recommendation if Cal Am does not comply with the conditions. The Authority agreed to revisit the issue if this Cal Am does not comply with the conditions. President Della Sala opened the item for Public Comment on the agenda item. Libby Downey questioned why the document was negotiable then expressed concern that the proposed surcharge would be paid at the expense of current residents and future residents would benefit. She then encouraged the Authority to work with the Water Management District as they have access to SRF loans and Cal Am cannot and indicated that the governance needs to be more specific because she thinks it is problematic moving items between B and C. Then Ms. Downey questioned if the Authority considered the Poseidon project strategy so the public would buy the plant after 30 years as well as questioned if the Authority considered costs of procuring energy from the Waste Management District. She suggested asking a City to help get power at a less expensive rate. Ms. Downey said that Salinas Water Rights concern her and directed the Authority to keep other projects supported and online. Lastly, she thanked Director Burnett for all his efforts.

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Alan Haffa spoke to Mr. Reichmuth's comment, and encouraged the Authority to keep all projects under consideration. He expressed that he does not think that the Cal Am project is cost comparable and in terms of viability and that the slant well technology and ability to be permitted has real questions. He then requested the Authority demand more control over the facilitation of the surcharge as a condition of support, and the Authority should use the current ability to leverage in order to get the best deal for the public as it is the only way to make it viable. Lastly he requested insertion of stronger language to unilaterally change the support to a contingency plan. Norm Brut, Executive Director of the Monterey County Farm Bureau indicated there are concerns over the well site in North Marina, and the science and risks around the slant wells including endangered species, shallow cliffs, the insufficiency of the water. Information presented at the workshop indicated they are going to hold any process that is subsurface to a no harm standard similar to any aquifer which presents a problem you have to show no harm to the aquifer as well as to the ocean itself. He encouraged the Authority to ensure there are alternative sites included in this process and are done concurrently and in parallel. Sandy Teal publicly thank the Authority for taking the time to do the necessary research and was was pleased to hear about the MPRWA coming forward as he felt this group represented both the people and the businesses. He urged the Authority to make the vote of project support. Tom Frutchey City Manger of Pacific Grove spoke in support of the Pacific Grove Small Water Projects indicating it does meet all the criteria requested and indicated that the Administrative Law Judge also supported this project. He indicated it is not a competing project but is a complementary project, characterized by low energy and low environmental footprint which can address multiple city objectives, reducing storm water flows, helping the areas of biological significance (ASBS) and is not just a Pacific Grove City project but will address the NIP program in Monterey and will allow the return of the Cal Am Corporation yard as a neighborhood aspect. The project would have full public ownership, low public financing with a simplified governance structure with, full public input and transparency. Without unanticipated delays, could be online prior to January 1, 2016. Lastly, he indicated that it would provide good will and justification to delay the imposition of the cease and desist order and requested the support of the Authority for the project. Nelson Vega strongly urged the Authority to follow through with making a decision, thanked Directors Burnet and Della Sala for their work and encouraged the Directors not be distracted by comments made that are irrelevant to this discussion and decision. He then spoke to Ms. Downey's comment that it is unreasonable to expect a company to make all the capital investment and then sell it to the community for a dollar. Rudy Fischer spoke to Mr. Frutchey's comments and encouraged the Authority to support the Pacific Grove Small water projects as a viable option. He then encouraged the Authority to use leverage to get some accountability regarding the surcharge. Ellison Ferrall presented the idea that the Federal government has a lot of ships that are mothballed and currently contain desalination capabilities and the Authority should consider innovative ideas such as utilizing and converting these ships to floating desalination plants. Rene Boscoff, General Manager of the Monterey Marriot said that our community has debated the water issue for over 35 years and indicated that the Authority must find a solution to the water issue. If businesses are required to reduce water consumption by 50% there will be a devastating effect on the community. The number one generator of revenue in this community is hospitality; therefore it is necessary to find a steady, predictable water source. He asked that the Authority support the MPWSP as presented in the staff report. Monterey Peninsula Regional Water Authority Special Meeting Minutes - Thursday, January 31, 2013 4

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Ken Talmage requested that the Authority consider strengthening the conditions on the second page regarding the contingency plan and indicated that cost is less important than timing indicating that there is less than 4 years before the cease and desist order comes into effect. He spoke to the current schedule of slant well test and requested the Authority to strengthen the 6th bullet and get the first option implemented so they are testing two things at the same time. Sue McCloud commented on the deliberative statement fully realizing this discussion is related to a snapshot in time. She questioned the specific language which is quantitative, but not defined, indicating there may be push back about what is meant by "suitable" and "competitive". She also expressed there is a difference in style as sub points, or declarative points indicating the declarative are much stronger. She questioned the item on page 4, item 4, questioning if Cal Am was to fund lower risk phases, because the Authority had expressed desires to have the surcharge fund the lower risk portions. She then echoed Director Pendergrass comment about power needs from local municipal utilities. Then she noted paragraph 11 speaks to governance and since there is no approved governance agreement it may need to be recast as "working to avoid". Alan Williams spoke about the historic process of the Carmel River Dam EIR process and how there were no project alternatives which is a reason we have the current dilemma. He encouraged the Directors not to leave the community without a viable alternative and said the proposed document is appropriate for an environmental process. He spoke in support of an alternative project proposal at the Moss Landing site as there is current infrastructure there and environmental reports which make it a viable alternative. Bonnie Adams Executive Director of the Monterey County Hospitality strongly recommended that the Authority support the Cal Am MPWSP. She supported her position by saying the details have been vetted by the TAC and the Cal Am project is only one before the CPUC. They have an EIR, as well as the technology, managerial and technical capabilities to build and per the SPI report is the only one close to being built in time. Failure to find a solution will impact the community dramatically. Sam Philips from the Monterey Commercial Property owners association read a letter by the Coalition of Peninsula Businesses urging the Authority to make a decision to support Cal Am project. All critical information was submitted and evaluated appropriately; the Process has been fair and objective and it is clear the Cal Am project needs your support. Monterey Commercial Property Owners Association is also requesting support of the Cal Am project at this time. MCPOA has always taken the stance for the lowest cost but a project that can be here in time is more important. Lastly, Mr. Philips made comments about the size of the desalination plant indicating this problem has been discussed for more than 30 years and would like to see the Authority support projects that will provide enough water and not hinder development and growth. By accepting a plant that does not produce sufficient amounts of water is kicking the can down the road. He encouraged the Authority to support the largest plant and allow the agencies to regulate as they were put in place to do. Jody Hansen spoke representing the Monterey Peninsula Chamber of commerce in support of Mr. Phillips comments and commended the Authority for exemplary work. She expressed support of selection of the Cal Am project, but to keep the alternatives in mind. Economic vitality really depends on this. Jobs will be lost and lifestyles will be impacted.

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Anthoy Tersol of Surfrider spoke to the ground water replenishment issue and the size of the final facility. He indicated Surfrider is an environmental organization but the members work in the trades and everyone will be affected and encouraged the Authority to consider other solutions outside of desalination including the use of the water treated at MRWPCA and discharged. John Narigi spoke of his service on the TAC indicating he has learned to respect the public official as they are required to listen to the complaints and comments. He thinks the TAC did an excellent job, directed by this group and each member put in a many hours working together and was a consensus but did not always agree. He spoke to the fact the same people participate in each meeting and it is clear that Cal am is the front runner in this race. He spoke in agreement with the conditions presented an indicated that an alternative is a must. He requested the Directors to please address this water issue so we can all focus on a project and make sure it will get across the finish line as close as it can to the deadline indicating rationing is a serious problem that hoteliers cannot answer. The Plaza made drastic, expensive changes to save water and keep costs and ability up to keep earning the TOT. Encouraged the decisions to be made not just for adequate supply but for ample supply for future needs. David Armanasco speaking for Deep Water Desal and on behalf of the DWD colleagues want to extend compliments about the process that the Authority has conducted, that it was a well run and intended process and thanked the members of the TAC with whom they have spent many hours working with. He wanted to make sure that people in the audience and the Authority identify that this document does not recognize that DWD has begun the EIR process. He acknowledged that there are serious questions about the Cal Am project and DWD will continue to go forward. Thank for being part of the process and good luck. With no more requests to speak, President Della Sala closed public comment and adjourned to a 10 minute break. He Reconvened the meeting at 9:13 p.m. and indicated that the Authority has already expressed support of the Pacific Grove Small Water Projects. President Della Salsa responded to some of the public comments made referencing the document then moved forward. Director Rubio expressed disappointment that the public is not as diverse as the people that are going to be affected by what happens here tonight. The people that depend on this water for jobs and raising their families are not here represented. Those folks are not represented but is sure they have a lot to say about the viability of those projects and how it will impact them. He expressed disappointment that the facilities and the document should consider a general plan build out. All mayors have a general plan in their cities which will need to be updated. We have an opportunity to request the CPUC to consider a full general plan build out in the scope. From all the comments we herd tonight it is appropriate for the CPC /CEQA to consider other projects as alternatives and it is up to the project proponents to gain the legs to catch up so we can consider them as viable alternatives. This discussion relates to the CPUC and the one project under review, as the others do not fall under the jurisdiction. President Della Sala asked Legal Counsel if there are any legal issues to request the CPUC to include a full build out of the cities general plans given the project we are supporting will be significantly small than the general plan build out? Legal Counsel McLaughlin responded that the Authority can make that statement in testimony from a policy stance, but cautions that the scoping memo from the EIR was last fall, the EIR is well underway, while we may make that comment, we cannot guarantee it will have an impact due to timing and other participating testimony on the merits of the project while the EP is being handled separately by the energy portion of the CPUC however there will be no harm making the comment from a policy standpoint. Monterey Peninsula Regional Water Authority Special Meeting Minutes - Thursday, January 31, 2013 6

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Director Edelen agreed with Director Rubios suggestion and thanked the Staff and Director Burnett for all the work that has been done. He then spoke to Director Burnetts comments that Cal Am's slant wells may not be successful it that must be understood all of the Directors have to agree on the one collective political project. The project that appears the furthest along is Cal Am, and if we have some influence over that project then we might be able to have impact over some aspects of pricing and other outcomes. Recommends supporting one project collectively. Director Pendergrass spoke to comments made last week that if we support a project it needs to be conditional and should be validated by the PUC. We do not want to support a project that will fail with no alternatives. He expressed concern about how the Authority will be able to control the 99 million dollar surcharge and wants to convey the Authority concerns to the CPUC. He commended the President and Vice Chair for work on this project and spoke to the Authority Mayors active participation with the publics best interest at hand. President Della Sala spoke to the concerns on page 1, Item number 3, referring to the purchasing powers with a municipality and should add public entity to that sentence. He then spoke to comment about innovation and encouraging residents to install catchment basins on roofs indicating it was not cost effective to put catch basins on system on existing buildings but truly does not think it will get enough water to meet the communitys needs. He then spoke to the surcharge comments that the reason for that proposal is to save money on interest and indicated that Mayor Burnett has crafted a solution to the risk regarding that surcharge and if that goes forward it would in effect once the permits are granted from the Coastal Commission so the ratepayer funds are less at risk. Director Burnett also responded to the comments about the surcharge and the concern expressed by the public and the Water Management District meeting as the goal is to reduce the financing cost and the net present value cost of the facility to our community. Total savings are well over $100 million that we would be brining to our community by introducing sources of public financing into this project. Director Burnett moved that the Authority adopt the proposed position statement with the following adds/modifications: 1. Reiterate a support for a portfolio approach for ASW and GWR and note that all have public ownership and must include a desal project. 2. Reference the existing the policy statement passed at a meeting regarding the principals 3. Identify edits within document. First page, item 3: the cost of electricity add in "other public entity or other source of power" which was intended to be a broader list. Next bullet 4: Cal Am must agree to limit the cost of revenue from Cal Am Surcharge 2, should read, "for example Cal Am would agree to use surcharge 2 to fund lower risk parts or phases". 4. Correct the way we are approaching contingency, to pull out the two last bullets of 5 to form their own number 6 to signal they are not sub issues but primary issues. The Second bullet: Cal Am must fully develop a contingency plan and implement for source water not in the Salinas Basin. This must be done concurrently with the planning and test wells. 5. Under the general heading "fiscal am meets the above condition:" would clarify Cal Am's current project size, consistent with replacement and replenishment, to include lots of record and economic rebound. 6. Point 11: Include "draft" before the governance committee agreement anticipated to be finalized in the next couple of weeks. Monterey Peninsula Regional Water Authority Special Meeting Minutes - Thursday, January 31, 2013 7

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Seconded by Kampe. Discussion on the Motion. Director Pendergrass requested number 10, regarding project alternatives, should be emphasized to be stronger. We don't want to go back to square one. Director Burnett proposed the change to read, "More over the Authority reiterates that both be reviewed at the project level." Director Kampe agreed to the modification. On a motion by Director Burnett seconded by Director Kambe and carried by the following vote, the Monterey Peninsula Regional Water Authority adopted the proposed position statement with the following adds/modifications: 1. Reiterate a support for a portfolio approach for ASW and GWR and note that all have public ownership and must include a desal project. 2. Reference the existing the policy statement passed at a meeting regarding the principals 3. Identify edits within document. First page, item 3: the cost of electricity add in "other public entity or other source of power" which was intended to be a broader list. Next bullet 4: Cal Am must agree to limit the cost of revenue from Cal Am Surcharge 2, should read, "for example Cal Am would agree to use surcharge 2 to fund lower risk parts or phases". 4. Correct the way we are approaching contingency, to pull out the two last bullets of 5 to form their own number 6 to signal they are not sub issues but primary issues. The Second bullet: Cal Am must fully develop a contingency plan and implement for source water not in the Salinas Basin. This must be done concurrently with the planning and test wells. 5. Under the general heading "fiscal am meets the above condition:" would clarify Cal Am's current project size, consistent with replacement and replenishment, to include lots of record and economic rebound. 6. Point 11: Include "draft" before the governance committee agreement anticipated to be finalized in the next couple of weeks. 7. Number 10 be changed to read, "More over the Authority reiterates that both be reviewed at the project level." AYES: NOES: ABSENT: ABSTAIN: RECUSED: 6 0 0 0 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Kampe, Pendergrass, Rubio, Della Sala None None None None

On a motion by Director Rubio and seconded by Director Edelen and carried by the following vote the Monterey Peninsua Regional water Authority directed staff to to submit written testimony to provide a policy statement of the need for preference for full consideration of full general build out for the sizing of the project and directed staff to work with members of the Authority to review the testimony to make sure it is accurate to reflect the amended motion. AYES: NOES: ABSENT: ABSTAIN: RECUSED: 5 0 0 1 0 DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: DIRECTORS: Burnett, Edelen, Pendergrass, Rubio, Della Sala None None Kampe None

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President Della Sala invited discussion on the motion. Legal Counsel confirmed that it does not conflict, but does broaden the bounds analysis. It does not modify the Authoritys position about the size of the project but for environmental purposes should look at something broader. In the even there is an opportunity for expansion we do not have to go through an EIR process again, just supplemental or amend. Director Kampe expressed concern about how much water is involved in "full general plan build out" acknowledging that it is dependent on each city's current adopted general plans. With no further business to come before the Authority, President Della Sala Adjourned the meeting. ADJOURNMENT

ATTEST:

Lesley Milton, Clerk to the Authority, Authority Clerk

MPRWA President

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