7. Project Need
Given this history, no party disputes that there is an urgent need to find an alternative water supply to replace Cal-Am's water supplies that are drawn from the Carmel River, in order to ensure that Cal-Am complies with SWRCB Order 95-10, the Seaside Basin adjudication, and the SWRCB Cease and Desist Order. We concur. Based on the long-running constraints on water supply on the Monterey Peninsula, there is little doubt that there is a need for additional water supply, over and above any water savings that can be accomplished through conservation, use of recycled water, or prohibition of potable water for landscape irrigation.
The Monterey Peninsula has been struggling to find solutions to the water supply deficit for decades.. We emphasize the history to provide a context for our decision to reach outside the usual procedure and to approve a costly desalination project as a reasonable solution. The severity and immediacy of the problem requires such an approach. We heard clearly from residents and business-owners that inaction at this point is unacceptable.28 There have been opportunities to move forward, but these have not been successful. For example, MPWMD proposed to build the New Los Padres Dam and Reservoir in 1989 and secured the required environmental documentation and permits. In November, 1995, the voters failed to pass a measure that would authorize funding of the New Los Padres Dam and Reservoir.
In 1996, Cal-Am filed Application (A.) 97-03-052, which proposed to construct a smaller dam and reservoir (the Carmel River Dam and Reservoir Project) that would have been operated to serve only existing community needs. MPWMD prepared a Supplemental EIR in 1998, building from the EIR certified for use in constructing the New Los Padres Dam and Reservoir. However, in 1998, Assembly Bill (AB) 1182 (Stats. 1998, Ch. 797) was enacted, which effectively halted the completion of the final environmental documents and ordered this Commission to identify an alternative to the dam.
In 2002, the Commission completed a water supply contingency plan, known as "Plan B," which concluded that a combination of desalination and aquifer storage and recovery could produce 10,730 afy. Cal-Am determined that the Carmel River Dam was no longer a viable project and, in 2004, filed the instant application, which was amended in 2005.
We concur that additional long-term water supplies are required to meet the pressing legal constraints on water supply on the Monterey Peninsula, and find that there is a pressing need for the Coastal Water Project.
As Cal-Am explains, once the Coastal Water Project is online, Cal-Am generally plans to utilize the majority of its Carmel River right to provide a base supply for the system during the winter. The Seaside groundwater allocation would provide a base supply in the summer. Excess Carmel River water and desalinated water would be injected and stored in the Seaside Basin Aquifer Storage and Recovery system in the winter for extraction during the summer to meet summer average and peak day demands. Desalinated water would be used to supplement remaining demand.29
We must squarely recognize that, while there is a pressing need for a reliable long-term water supply on the Monterey Peninsula, desalinated water is extremely expensive, both in terms of capital costs and in terms of ongoing operations and maintenance costs. While we approve Cal-Am's participation in the Regional Project by today's decision, we continue to encourage parties to search for all possible water supplies that can reduce the need for desalinated water, as the additional components of the Regional Project, Phase 2 are studied and analyzed.
We have previously ordered Cal-Am to reduce leaks and to carefully account for previously-unaccounted for water.30 We must also encourage creative approaches to meeting potable water needs. For example, we addressed Cal-Am's Monterey District Summer Maximum Day Demand in D.09-07-021:
We agree with Cal-Am's Study that reducing or prohibiting the use of potable water for outdoor landscape irrigation during peak demand periods is a reasonable means of addressing short-term supply limitations. Unlike residential and commercial consumption or sanitary uses, outdoor landscape irrigation does not require potable water, and reclaimed and other forms of non-potable water are common substitutes. We conclude, therefore, that use of potable water for outdoor irrigation is not entitled to the high standard of reliability we require for residential and commercial consumption and sanitary uses. We observe, as well, that outdoor landscape irrigation may play a large role in bringing the system to maximum Daily Demand. (Footnote omitted.)
As American Water recognized in its capacity additions strategy . . . developing a program to implement a lower standard of availability for outdoor irrigation will require significant work with customers to address numerous issues. Because most residential and commercial customers do not have separately metered landscape irrigation, among the issues requiring resolution is creating an efficient and feasible means to timely initiate and enforce landscape irrigation prohibitions.31
D.09-07-021 also removed the lot size and seasonal discounts from Cal-Am's rate design scheme and therefore customers are, appropriately, no longer insulated from the high cost of outdoor irrigation. We have approved Advice Letter 832-A to implement an Emergency Interruption Program, whereby large landscape irrigation system use would be curtailed voluntarily or by Cal-Am physically turning off the dedicated irrigation water meters, most likely during the peak watering month of July. The highest use dedicated irrigation meters serve two golf courses, parks, a cemetery, and sports fields. While we recognize that there are technical and legal issues to contend with, we continue to encourage Cal-Am to explore the use of non-potable water to serve these customers, as directed in D.09-07-021.32
7.1. Impact of Cease and Desist Order
The timing associated with water supply constraints has become particularly critical with the issuance of the SWRCB's Cease and Desist Order. On July 27, 2009, the SWRCB issued a Draft Cease and Desist Order that orders Cal-Am to undertake additional measures to cease its unauthorized diversions from the Carmel River. After considering written comments and public testimony, the SWRCB issued a revised Draft Cease and Desist Order on September 16, 2009. The SWRCB issued its Cease and Desist Order on October 20, 2009 (Order WR 2009-0060), which requires Cal-Am to undertake additional measures to reduce its diversions from the Carmel River and to terminate all such diversions no later than December 31, 2016. A court order temporarily stayed the Cease and Desist Order, but the Superior Court of Santa Clara County lifted the stay on April 22, 2010.
On May 7, 2010, Cal-Am moved to request official notice of both the SWRCB's Order WR 2009-0060 and the Superior Court's Order dissolving the stay. No party has objected to this motion, and, pursuant to Rule 13.9, which provides that "[o]fficial notice may be taken of such matters as may be judicially noticed by the courts of the State of California pursuant to Evidence Code section 450 et seq.," we hereby grant Cal-Am's request for official notice.
The Cease and Desist Order states in no uncertain terms that Cal-Am can and must reduce its unlawful diversions from the Carmel River without further delay. The SWRCB presents a range of options for Cal-Am to begin complying immediately with the Cease and Desist Order, including reducing its system losses by 549 afy, anticipating that approximately 41 afy of additional savings can be obtained as properties are retrofitted and conservation measures are installed, reducing use of potable water for outdoor irrigation by approximately 12 afy, imposing additional water demand management programs (in conjunction with MPWMD), and prohibiting new service connections.33
Based on the mandatory cumulative annual reductions, the estimated operational yield from the Aquifer Storage and Recovery (ASR) project, the estimated afy supplied by the Sand City desalination plant, and the estimated Coastal Water Project output, the Cease and Desist Order finds that the total amount diverted from the Carmel River must not exceed Cal-Am's water rights of 3,376 afy by the 2016-17 water year.34
Permitting and building the approved desalination plant and associated infrastructure will take a significant amount of time.35 We agree with the Settling Parties: it is reasonable to approve the Regional Project without delay in order to ensure that the required water supply is available to the Monterey Peninsula by the 2016-17 water year, as required by the SWRCB. There is no reason to believe that the Cease and Desist Order will be lifted or softened over time.
7.2. Need for Cal-Am to Provide Water at Reasonable Price
This Commission has an obligation to assure that Cal-Am can provide "adequate" water to the citizens of Monterey at a "reasonable" price. What constitutes "adequate" is within our purview, as is the determination as to what is a "reasonable" price. In determining what is "adequate", we are constrained by the Cease and Desist Order. Under the Order, Cal-Am must reduce its unlawful diversions of water from the Carmel River annually and terminate all unlawful diversions by no later than December 31, 2016. This would mean a reduction of over 7,000 afy, leaving 3,376 afy effective January 1, 2017. Without additional sources to make up the difference, severe rationing will need to be imposed and the economy of the Monterey Peninsula will be severely impacted. At this time, there are no possible sufficient other sources of water available, even with mandated conservation efforts, within the timeframe imposed by the State Water Resources Control Board.
The Commission, therefore, must balance the cost burden contemplated on Cal-Am ratepayers from the construction of the Regional Project, generally regarded as the only feasible project with the likelihood being completed within the time limit imposed by the State Water Resources Control Board, with the burden on those same ratepayers if no alternative source of water is produced. It is undisputed that the situation resulting from the Cease and Desist Order is not sustainable in that it is not sufficient to meet even current needs.
In this decision, the Commission must decide what is a "reasonable" cost burden to inflict on Cal-Am ratepayers, under what conditions such a cost can be undertaken, and how the cost can be controlled such that an appropriate balance can be achieved. Given that the projected supply of water is "inadequate" and the consequences of no project severe, we are forced to look at what may be "reasonable" in an expanded way. By the same token, however, we must not burden ratepayers with such a cost as to be prohibitive or destructive. There is a limit beyond which the contemplated cost is simply too great and even badly constrained water supplies must be deemed adequate. Cal-Am can be required to do its part, but not whatever is asked of it.
The water problems on the Monterey Peninsula are long-standing, contentious, and bitterly disputed by many parties and interests. They result from a continuing conflict of community values that is decades-long, and which have rendered earlier possible solutions unachievable. The proposed solution is more expensive and complex than would have been the case if the various interests could have taken a wider view of community interests at an earlier stage. It is not this Commission's obligation to solve Monterey Peninsula water problems. It is also not our role to question whether the Cease and Desist Order is the "correct" resolution of the issues or to otherwise question the basis of that decision. Our role is to consider and decide what Cal-Am ratepayers can reasonably be asked to do to produce a solution to their own supply shortfall. Until this Commission approves the course of action proposed by Cal-Am, it cannot go forward.
Several of the parties have commented on the threat of litigation. Unfortunately, this Commission cannot by its actions obviate that threat. We do not have an all-party settlement, and the history of Monterey and water is replete with litigation and threats of litigation. We must, however, do our best to balance the proposed solution, the need and the community interests.
Finally, we recognize that this Commission's jurisdiction does not extend to the regulation of other governmental agencies. We can and do, however, have broad powers to condition the actions and commitments of Cal-Am, and can take into account the legal and constitutional processes and duties of other agencies of government, such as we do in the case of the Department of Public Health and the California Energy Commission. Thus, we look to these processes and duties to ensure that Cal-Am's provision of water to its ratepayers on the Monterey Peninsula through the Regional Project is achieved at a reasonable cost in light of these competing interests.
28 RT at 1843, for example.
29 Exhibit 104 at 26.
30 D.09-07-021 at 155-156.
31 D.09-07-021 at 20-21.
32 Id. at 131 - 132.
33 Cal-Am has filed A.10-05-020 to implement proposed moratoria on new connections.
34 SWRCB Order 2009-0060, Attachment 1 at 64. A water year is calculated from October to September.
35 FEIR at 5-40.
