12. Technical issues
According to the BOR's report, the capital costs of the desalination project will be reduced by requiring competitive bidding and eliminating a second pass in the reverse osmosis technology. BOR also recommends that a year-long pilot project be implemented, in order to address technical concerns with desalting the water, which may impact the performance of the reverse osmosis membranes. BOR believes this desalting pilot test is worth the additional time and expense required. DRA agrees with this recommendation and contends that such an approach will decrease implementation costs and reduce financing costs.
Section 4.3(b) of the WPA provides for a competitive procurement process to select a qualified contractor or contractors to construct the Regional facilities. We are satisfied with these provisions and find that no modification to the WPA is required.
12.1. Partial Second Pass and Boron
BOR maintains that a second pass reverse osmosis is not required to meet either the federal Environmental Protection Agency standard or the current California Department of Public Health notification level for boron of 1 milligram per Liter (mg/L). While DRA supports designing the Regional Project to meet the current requirements, it objects to requiring Cal-Am ratepayers to pay for second pass treatment to "meet the needs of MCWD customers and the agricultural community."137 DRA contends that the cost of the additional reverse osmosis equipment required for the second pass is $10.3 million, which would be escalated to $18.7 million, assuming a 30% implementation adder added to the 25% contingency allowance, and compounded by the proposed 17.5% allowance for the high end of design of the plant. DRA believes this decision is driven by agricultural interests seeking to reduce the level of boron in the recycled water used for irrigation. Again, DRA argues that a pilot test program would allow for an exploration of the impact of boron and would be much less costly than $18.7 million.
While DRA urges that we modify the Settlement Agreement to eliminate the requirement for a partial second pass, the Settling Parties maintain that the partial second pass required by the Settlement Agreement and the WPA "provides additional reliability for reducing boron to levels lower than the State notification level of 1 mg/L, prevents horticultural toxicity when the desalinated water is used to irrigate the home landscaping of the CAW ratepayers, and helps protect the approximate $4 billion per year agricultural industry of Monterey County when the water is returned and used in the form of recycled water for agricultural irrigation."138 Settling Parties strongly contend that eliminating the second pass would save only 3% of the total project cost and would increase risks associated with desalinated water production. Cal-Am is also concerned that using a single pass for the Reverse Osmosis process would trigger a requirement to notify its customers because of California Department of Public Health guidelines and requirements.139 Although the concerns appears to be centered on public perception rather than any actual health concerns, Cal-Am is understandably reluctant to commit its ratepayers to paying for a desalination facility that could lead to concerns about the quality and safety of the desalinated water.
Public Trust Alliance asserts particular concerns about eliminating the second pass requirement in order to save money on this project. Public Trust Alliance contends that the benefits of the second pass technology clearly outweigh the increased compliance costs and argues that many of the benefits are weighted toward future considerations. Public Trust Alliance explains that the harmful effects of boron exposure fall most heavily on the young, that it is reasonable to ensure that up-to-date technology be used to protect future generations, and that it is not reasonable to assume that the "regulatory lag" in updated requirements by the Federal Environmental Protection Agency and the California Department of Public Health should be the level that protects the public trust. In essence, Public Trust Alliance asserts that "[s]econd pass technology is no longer a `gold-plated' standard; it is relatively common in new projects."140
We agree with the Settling Parties. We are convinced that protecting the public resources and ensuring that a higher level of technology is in place to address boron and other potential contaminants comports with the public interest. Therefore, we make no modifications to the use of second pass technology in the Settlement Agreement and the WPA. We believe that the Public Trust Alliance has expressed it well:
The Public Trust Alliance recommends that second pass technology be permitted subject to the conditions specified in the Water Purchase Agreement. These conditions effectively prevent an arbitrary or wasteful expenditure. We recognize that the selection of appropriate technology will be based on the advisory committee's evaluation of the relative merit of technical solutions presented by offerors in a competitive procurement. We are optimistic that the committee's decision will reflect an appropriate valuing of environmental and public trust concerns. Acquisition of effective technology should not be hampered by a view that the minimum statutory requirements represent a ceiling on what may be purchased.141
As we have explained previously, the WPA provides for a 94-year agreement. The plant and its components will obviously require replacement prior to the expiration of the WPA. However, because the desalination plant is a major addition to the Monterey Peninsula's permanent water infrastructure, it is reasonable to allow for reverse osmosis technology that will allow for a margin of safety that exceeds the current minimum legal requirements.
DRA supports BOR's recommended year-long pilot test and asserts that this approach is necessary to reduce risk, keep the project on a critical path, and still meet the Cease and Desist Order timeframe. Assuming that the CPCN decision is issued by year-end, DRA maintains that the anticipated 4.5 year timeline would still result in project completion by 2015, i.e., approximately a year ahead of the Cease and Desist Order's 2016 deadline. In fact, DRA maintains that such an approach is crucial to avoiding design error, equipment failure, or membrane scale formation that could arise and delay the construction and operation of the Regional Project. Moreover, BOR estimates that a year-long pilot program would cost $1.5 million if the pilot unit from the Moss Landing proposed project is refurbished and re-used. DRA asserts that this unit should indeed be repurposed for Cal-Am ratepayers' benefit, since they have paid for the Moss Landing pilot project as part of Special Request Surcharge 1.
12.1.2.1. Discussion: Pilot Test
We agree with Settling Parties that a year-long pilot test is not necessary. The technical experts to MCWD and MCWRA are convinced that additional pilot testing would not provide additional information that cannot be ascertained from the test wells, and would add delay and expense to the process.142 DRA and the BOR argue that the information gleaned from the pilot testing phase could well lead to reduced implementation costs. The Settling Parties argue that such an approach would add approximately $9 million to the capital costs (based on the $1.5 million cost estimated by BOR and $8 million estimated for the year's delay in the project).143
A pilot test was previously conducted for the Moss Landing project, as all parties have acknowledged,144 and we see no reason to delay this project any further. We agree with MCWRA's conclusion that because a pilot test would certainly add to costs and it is not clear whether such an approach will save implementation costs, "without very strong evidence that a pilot is necessary, a pilot test should not be required."145 Given the sensitivity analysis in DRA's testimony, it is clear that a delay in the construction period will add to the costs of the project and we are not convinced that implementation costs will be correspondingly reduced. As the Regional Project evolves and solidifies in design structure, the Settling Parties will be providing reports to and meeting regularly with DRA and DWA. We are confident that these status reports and meet-and-confer sessions will provide sufficient information to address concerns going forward.
While we have not required modifications to the Settlement Agreement based on the BOR report, we observe that the BOR has significant experience with desalination projects and it is reasonable that the Settling Parties consider the suggestions they have made for careful, cost-effective approaches to the project.
DRA also recommends that § 9.5 of the WPA be modified to ensure that, to the extent Cal-Am elects to receive less than its full allocation of 8,800 afy, Cal-Am should own the water and have the right to sell that water for not less than the incremental cost of water. Of course, if MCWD wishes to buy the excess water, DRA does not object to Cal-Am selling any excess water to MCWD, to the extent that there is not a buyer willing to pay more than MCWD is willing to pay.
The Settling Parties contend that DRA's concerns regarding the sale of excess water are misplaced. "To be clear, if at any time CAW elects not to take its full 8,800 afy allocation of Product Water from the Regional Desalination Project, whether due to `increased conservation or acquisition of additional water supply' (cite omitted) or for any other reason, and MCWD then were to elect to take the excess water, MCWD would be paying full price for that excess water."146 However, MCWD also explains that if Cal-Am elected not to take its full allocation, MCWD would have the right of first refusal of that water, before parties explore the sale of excess water to third parties. Based on the fact that MCWD is unlikely to require even its Permanent Allocation of water in the foreseeable future, we agree that it is unlikely that this clause would be exercised. We do not find that any modifications to the Settlement Agreement and the WPA are necessary to address sale of excess water. Nevertheless, we do want to be clear that any sale of excess water should inure to the benefit of Cal-Am ratepayers. Cal-Am ratepayers are providing the vast majority of the funding for this Regional Project and should correspondingly benefit from any sales of the product water.
137 DRA at 20.
138 Exhibit 319 at 30.
139 Cal-Am Opening Brief at 34-35.
140 Public Trust Alliance Opening Brief at 8.
141 Public Trust Alliance Opening Brief, Tables and Recommendations at page x.
142 Id. at 67.
143 Id.
144 See, e.g., RT at PHC-3 at 47.
145 MCWRA Reply Brief at 18.
146 MCWD Reply Brief at 25.
