Aug. 17, 2004 -- The Monterey County Water Resources Agency and California-American Water Co. have reached an initial agreement that for the first time spells out the partners' "desire" that their proposed Moss Landing desalination plant be owned by the county.
The agreement also presents the possibility of using public funds from the Proposition 50 Clean Water Act to pay for a portion of the plant's cost. After construction, the plant could be transferred to Cal-Am for up to 35 years while it makes a "reasonable" return on the company's investment.
The Monterey County Board of Supervisors will consider approval of the agreement at its meeting today.
Two supervisors, Dave Potter and Lou Calcagno, expressed ire this week that Cal-Am was requesting a "fast track" for its permit for a pilot desalination project at the Duke Energy plant. Potter also worried that Cal-Am could bury the costs of repairing or destroying Cal-Am's San Clemente Dam and rebuilding its aging infrastructure in the desalination project's bill.
General managers of the Monterey County Water Resources Agency and Cal-Am hailed the initial agreement as a major step forward in the partnership. The purpose of the agreement is to find ways to raise money for the plant's construction and provide for its ownership.
The intent, said county water chief Curtis Weeks and Cal-Am general manager Steve Leonard, is for the plant's ownership to be transferred to the water resources agency as soon as possible.
"This is the first time, in writing, that Cal-Am has acknowledged that this needs to be a public facility," said Weeks.
Leonard stressed that the agreement is the first in what will be many that spell out the project partnership.
"Getting a project done is a long process. We're in the early stages. We're trying to make clear our intention to work together toward a publicly owned plant," said Leonard. "There's a whole bunch of ways to skin a cat."
The agreement specifically mentions using the "flexibility" of the state Infrastructure Financing Act, which provides for public-private partnerships on water projects. Passed in 1996, the legislation replaced state law that required competitive bidding on such projects.
The law says public agencies can allow private entities to own infrastructure and water projects for up to 35 years before transferring them to public ownership, and allows the private entities to make a reasonable profit on their investment.
Complicating that picture is a 1989 county ordinance requiring any desalination plant to be publicly owned. The ordinance has never been legally challenged.
The draft agreement also mentions the possible use of Proposition 50 funding.
In a controversy that has been brewing across the state, private water companies, including Cal-Am, have been lobbying for access to Proposition 50 funds while consumer protection groups are arguing the funding was intended only for public use.
Marc del Piero, legal counsel for Pajaro-Sunny Mesa Community Services District, which is proposing a competing desalination project in Moss Landing, said Cal-Am is essentially using its partnership with the county to make a grab for public money.
"In a sense, what you have is public money going to finance a private enterprise," he said of the Cal-Am project.
He said his district's proposal to build a plant on the old National Refractories plant, next door to Duke Energy in Moss Landing was a better deal for taxpayers.
"We're a public, not-for-profit organization," del Piero said. "Other than the rent we're going to pay for the site, we don't have to worry about negotiating a profit split."
The county and Cal-Am are somewhat under the gun to reach an agreement. The state Department of Water Resources announced Thursday it will release $100 million in Proposition 50 funds for desalination projects over the next three years.
The deadline for applications, which must include a project description and location, is Jan 1. Cal-Am and the county have yet to identify a location for their site, though two likely sites are on Duke Energy property in Moss Landing.
County supervisors Calcagno and Potter, who comprise the board's desalination committee, both said they would oppose Proposition 50 funding for anything other than a publicly owned project.
"I'm concerned about public money being used for private gain. I don't think that's what the public intended," when it passed the proposition, said Potter. "I'm opposed to any privatization of a public resource for private gain, whether it's on this continent or another."
Cal-Am is part of a privately owned German conglomerate.
Potter said he is also concerned about the potential for Cal-Am to bury dam and infrastructure repair costs in the desalination project. The state has ordered Cal-Am to either seismically retrofit the San Clemente Dam or tear it down.
"There are thousands upon thousands of cubic yards of silt in there. You can walk from one side of that dam to another without having any religious powers whatsoever," said Potter. "So how is Cal-Am going to pay for that dam?"
Potter said he also was intrigued that after years of screaming by the public and the Monterey Peninsula Water Management District for Cal-Am to repair its leaky pipes on Carmel Valley Road, the repair project was under way just as the company comes to the county with a proposed partnership.
Leonard, the local Cal-Am chief, could not be reached to respond to Potter's concerns.
For his part, Calcagno was incensed at Cal-Am's request that its permit for a pilot desalination project at Duke Energy be "fast-tracked." The North County supervisor said he would not vote to approve the permit unless the county had a signed agreement with Cal-Am and the pilot project was a partnership between the parties.
"There ain't going to be no permit unless there's an agreement on the entire thing," Calcagno said.
Cal-Am's Leonard said there was no distinction between the pilot project and the major desalination project and denied that Cal-Am had sought special treatment for the pilot project application.
However, Scott Hennessy, Monterey County planning chief, confirmed Friday that he had just come from a meeting with Cal-Am's engineering consultants, who were told they would get no special treatment.
"They're getting normal treatment," Hennessy said after meeting with Jim Brezack of RBF Consulting. "They were hoping to move along expeditiously, but were told we have a process they have to go through."
He estimated that process would take 50 to 60 days.