After four months of discussions, utility California American Water and the public agencies negotiating an agreement to bring much-needed water to the Monterey Peninsula appear back at square one and further apart on their terms for a deal. Some close to the negotiations say a deal is no longer imminent.
The public agencies—Monterey Peninsula Water Management District, which oversees the area’s water distribution, and Monterey One Water, the region’s sewage utility—and their boards need Cal Am to buy the additional water promised by the approved expansion of Pure Water Monterey, a project that recycles the area’s wastewater and makes it drinkable. The area is facing an increasingly critical water shortage and Cal Am, an investor-owned utility that has operated in the region for decades, owns the distribution system.
Agency brass says a deal with Cal Am to buy the additional water is the quickest way to secure state financing for the Pure Water Monterey expansion. The longer a deal takes, the lower the odds of securing the state’s limited low-interest loans.
However, there are long simmering tensions at play: Pure Water Monterey wrestled public support away from Cal Am’s desalination plan—its proposed solution to the regional water shortage that carried greater cost and environmental impact than Pure Water Monterey.
The public agencies have filed a legal complaint attempting to force Cal Am to buy the water. Add to this the MPWMD’s ongoing attempt at a public takeover of an unwilling Cal Am through eminent domain and the state’s forthcoming tightened restrictions on Cal Am’s ability to draw water from the Carmel River by year’s end, and the touchy nature of these negotiations becomes clear.
A contract for Cal Am to buy the water was in front of the public agency boards for approval in August but the sides are now back to square one after a handful of legal experts representing M1W, MPWMD and the Marina Coast Water District determined the terms of the contract to be illegal.
The section in question would have required that, in exchange for Cal Am buying the water, the agencies would have to commit to supporting Cal Am’s desalination plant if the Pure Water Monterey expansion failed to deliver enough water in consecutive years. The legal opinion was that a contract could not bind future agency boards to support for a private project.
The need to start over has pushed the sides further apart, says David Stoldt, MPWMD’s general manager. Stoldt was admittedly okay with MPWMD committing to supporting the desalination plant in the event of a default because he saw the level of default outlined in the initial contract as highly unlikely. In this latest round of negotiations, which Stoldt could only touch on publicly, he says Cal Am is proposing harsher penalties for issues that are more likely.
“If you could be in the room, you’d be rolling your eyes,” Stoldt says. “It’s so hard for us to tell what Cal Am’s real agenda is. We’re a little bit surprised.”
He says the water purchase agreement between the sides for the initial Pure Water Monterey project did not include any of the language at-issue in this agreement. However, Stoldt says the sides met this week and had “a very good meeting” which he described as “less adversarial” but lacking any agreement.
Catherine Stedman, spokesperson for Cal Am, says the agencies should have expected stricter language this time around. She says when the sides negotiated the water purchase agreement for the original Pure Water Monterey project—not the expansion—the project was seen as a supplement to Cal Am’s proposed desalination plant.
In this latest round, Pure Water Monterey and its expansion have taken the place of desal. Stedman says Cal Am wants guarantees that the project will work.
“Pure Water Monterey expansion is being championed by the [MPWMD] and others as the only water supply project the Peninsula will need for the next 20 years,” Stedman says via email. “If this is a true statement, they should be willing to stand by its performance. If we put all our eggs in the basket of Pure Water Monterey and the project fails, the Peninsula will be in a dire situation. Hopefully this is a very unlikely scenario, but it’s appropriate for this agreement to contemplate it and to plan for it.”
Stedman says Cal Am’s only focus is getting the Peninsula water. Cal Am has committed $2 million in financing to the project so it can stay moving while the water purchase agreement is negotiated (Stoldt says Cal Am has only provided $500,000 so far). However, if Pure Water Monterey defaults on its water commitments, Stedman says the state would likely bring penalties down on Cal Am, which will get passed onto ratepayers.
“It’s fair in this situation to look for performance guarantees to ensure there is an incentive for it not to fail,” Stedman says.
Stoldt says time is of the essence. He says if Cal Am presents language that is workable, he will call an emergency meeting of his board of directors for a discussion.