II. BACKGROUND

The adequacy, purity and safety of Mineral's water supply has been a matter of concern to the Department since 1991 when the State of California adopted new surface water filtration and disinfection treatment regulations. The regulations required all water systems to comply with their terms by June 29, 1993. Despite repeated enforcement efforts by the Department - beginning in 1994 - Mineral remains out of compliance with the aforementioned regulations. A detailed accounting of the Department's various compliance agreements and other enforcement activities appears in the Attached Declaration of Gunther Sturm, a Department employee who has been involved in the Department's enforcement efforts against Mineral.

Mineral has taken a number of steps to comply with the Department's enforcement orders including having three separate wells drilled as replacement groundwater sources of supply; however for a variety of reasons (including adequacy of supply and purity issues,) these efforts have not been successful. Although the Department has repeatedly given Mineral extensions of time to comply with its enforcement orders, Mineral continued to rely on untreated water from Martin Creek as a source of supply, in contravention of applicable state regulations. Several improvements in the system were completed in 1998 which allowed Mineral to discontinue the use of untreated Martin Creek water, however, recent decreases in water supply have required the use of Martin Creek to keep the system in water.

Also, when the purity of the water in Mineral's system in late 1999 was checked by an independent laboratory, the level of lead in the water was above the level where action is required under state regulations; however, Mineral failed to perform the required follow-up action after the violation was uncovered, and Mineral failed to appropriately notify the Department about the violation.

In 2000 Mineral began having problems meeting water demands relying exclusively on groundwater sources, because of decreases in the production from its well and springs. This problem was particularly acute during summer weekends. In response, Mineral began (on a limited basis) once again relying on Martin Creek as a water source. In February of 2001, Mineral mailed a notice to its customers informing them that it was once again relying on Martin Creek as a water source, and advising them that the water should be boiled before drinking. The Department was not informed by Mineral about its decision to resume using Martin Creek as a water source.

In March of 2001, the Department initiated another enforcement action against Mineral. In response Mineral retained Luhdorff and Scalmanini Consulting Engineers. Luhdorff prepared a technical memorandum report that identified the deficiencies in the existing system and proposed interim remedial measures. Among these measures was the installation of a filtration system capable of processing 20 gallons per minute of water. Luhdorff proposed that the filtration facility could be installed by June 15, 2001.

Instead of carrying out its stated intentions to install a filtration system, in late May of 2001, Mineral formally informed the Department that it would not comply with its latest compliance order, No. 01-21-01, (O) 52001. In a May 22, 2001 letter from JoAnn Perkins, President of Mineral, Ms. Perkins stated that Mineral would not make the improvements called for in compliance order, 01-21-01, (O) 52001. The letter also expressed Ms. Perkins' desire to place Mineral into receivership.

Subsequent to Ms. Perkins' May correspondence to the Department, Mineral was given a citation by the Department in late June and mid-July by the Department for its failure to comply with the recommendations of its consulting engineers. These citations were followed by another citation in August of 2001, for Mineral's failure to provide an engineering report to the Department by August 1, 2001. On August 14, 2001, Mineral informed the Department that it was instituting a mandatory water-rationing program because of continuing supply problems.