I. INTRODUCTION
In this Order we dispose of the application for rehearing of Decision
(D.) 10-12-016 (or "Decision") filed by the Division of Ratepayer Advocates ("DRA").
The Decision approved a Settlement Agreement and Implementing Agreements filed by California-American Water Company ("Cal-Am"), Marina Coast Water District ("MCWD"), Monterey County Water Resources Agency ("MCWRA"), Monterey Water Regional Pollution Control Agency, Surfrider Foundation, Public Trust Alliance, and Citizens for Public Water ("Settling Parties").1 The Settlement Agreement proposed a public-private partnership between Cal-Am, MCWD, and MCWRA to develop a Regional Project to solve the long-standing water supply deficit on the Monterey Peninsula.2
The Regional Project is a water desalination facility and aquifer storage and recovery system designed to replace water from the Carmel River and Seaside Groundwater Basin. Water replacement is required in order to comply with two Cease and Desist Orders issued by the State Water Resources Control Board ("SWRCB").3 Those orders directed Cal-Am to first reduce its diversions from the Carmel River, and ultimately terminate all diversions by December 31, 2016.4 (See D.10-12-016, at pp. 1, 4, 9-10, 17-21 & 30-32 [Discussing the history of water constraints on the Monterey Peninsula, the Cease and Desist Orders, and the urgent need for a water supply solution].)
Under the Settlement Agreement, MCWD will construct, own, operate and maintain the desalination plant and product water conveyance facilities to the delivery point, which then becomes Cal-Am's intake point. MCWRA will construct, own, operate, and maintain the brackish source water wells that will provide the feedwater for the desalination facility, as well as the conveyance pipeline to the desalination facility. The Decision authorized up to $297.5 million for those facilities, which will be funded by Cal-Am ratepayers. (D.10-12-016, at pp. 84-86.)5
Cal-Am will construct, own, operate, and maintain three large diameter conveyance pipelines, two distribution storage reservoirs, and aquifer storage and recovery facilities to provide the desalinated water ("Product Water") to its customers. (D.10-12-016, at pp. 5, 58, 62-64.) The Decision authorized up to $106.875 million for the Cal-Am only facilities. (D.10-12-016, at p. 135.) On whole, Cal-Am's customers will receive over 90% of the Product Water from the Regional Project. (D.10-12-016, at p. 87.)
All parties, including DRA, supported development of a Regional Project and agreed that an immediate water supply solution is needed. (D.10-12-016, at pp. 27 & 149.) In addition, all parties agreed that MCWD and MCWRA (collectively, "Public Agencies") are essential participants in the Regional Project. (Ibid.)
DRA filed a timely application for rehearing alleging that the Decision was unlawful because: (1) the Commission unlawfully delegated its obligation to ensure that rates are just and reasonable pursuant to Public Utilities Code sections 451, 454, and 728;6 (2) the Decision erred with respect to its treatment of the Financing Plan and advice letter procedures; and (3) the Decision contains miscellaneous factual errors. Responses were filed by Cal-Am, MCWD, and MCWRA (jointly), and the Public Trust Alliance.
We have carefully considered the arguments raised in the application for rehearing and are of the opinion that while the Decision is lawful, it is necessary to modify the Decision to correct certain factual and technical errors. In addition, we will modify the Decision to clarify the review procedure to be followed should Cal-Am seek recovery for any project costs in excess of the cost caps authorized in D.10-12-016. Good cause has not been established to grant rehearing. Accordingly, we deny the application for rehearing of D.10-12-016, as modified herein, because no legal error has been shown.
1 The Settlement Agreement includes two Implementing Agreements. One is a Water Purchase Agreement ("WPA") detailing the rights and responsibilities of Cal-Am, MCWD, and MCWRA with respect to ownership, construction, maintenance and operation of the Regional Project. (See Exhibit ("Exh.") 301.) It also specifies the financing and cost responsibilities of each entity. The other is an Outfall Agreement governing the terms and conditions for discharge of brine into the Monterey Bay. (See Settlement Agreement, Attachment 2.) (See also D.10-12-016, at pp. 59-62.)
2 We had previously directed Cal-Am to seek such public-private partnerships in order to develop a water supply solution in the Monterey Peninsula. (See e.g., In the Matter of the Application of California-American Water Company for a Certificate that the Present and Future Public Convenience and Necessity Requires Applicant to Construct and Operate the 24,000 Acre Foot Carmel River Dam and Reservoir in its Monterey Division and to Recover All Present and Future Costs in Connection Therewith in Rates [D.03-09-022] (2003) __ Cal.P.U.C.3d __ , at p. 12 (slip op.).)
3 The Commission certified the Final Environmental Impact Report for the Regional Project in In the Matter of the Application of California-American Water Company for a Certificate of Public Convenience and Necessity to Construct and Operate its Coastal Water Project to Resolve the Long-Term Water Supply Deficit in its Monterey District and to Recover all Present and Future Costs in Connection Therewith in Rates ("Decision Certifying Final Environmental Impact Report") [D.09-12-017) (2009) __ Cal.P.U.C.3d __ .
4 SWRCB issued Order WR 95-10 in 1995. Order 2009-0060 was issued in 2009. In 2006, the Monterey County Superior Court also issued a final decision regarding adjudication of water rights of various parties who use groundwater from the Seaside basin. (California American Water Company v. City of Seaside et al., Case No. 66343, dated April 1, 2010.)
5 See also Exh. 301, attached Exh. C.
6 All subsequent section references are to the Public Utilities Code, unless otherwise stated.
