Carmel Area Wastewater District/Pebble Beach Community Services District

Pebble Beach Company

WASTEWATER RECLAMATION PROJECT

MANAGEMENT COMMITTEE

MINUTES

Meeting of January 7, 2005

Pebble Beach Community Services District Boardroom

3101 Forest Lake Road, Pebble Beach, CA

1. Call to Order

Richard Andrews, PBCSD General Manager, serving as facilitator, called the meeting to order at 9:40 a.m. All members or alternates were present, including: Joyce S. Stevens and Charlotte F. Townsend, Carmel Area Wastewater District Board of Directors (CAWD); David R. Hendrick and Gary D. Hornbuckle, Pebble Beach Community Services District Board of Directors (PBCSD); and Mark Stilwell, Executive Vice President, Pebble Beach Company (PBCo).

Others in attendance:

Andrew Bell, District Engineer, Monterey Peninsula Water Management District (“MPWMD”)

Kenneth Buchert, Associate Legal Counsel, CAWD/PBCSD

Ray von Dohren, P.E., General Manager, CAWD

Barbara Buikema, Accountant/Controller, CAWD

Michael Niccum, P.E., District Engineer, PBCSD

Mike Magretto, Field Operations Supervisor, California-American Water Company (“Cal-Am”)

Robert Hoffman, P.E., Carollo Engineers

2. Visitors, public comment and/or changes to the agenda:

There were no comments from visitors, and no changes to the agenda were requested.

Mr. Andrews indicated for the record that this meeting was originally scheduled to be held on December 3, 2004 and was rescheduled to January 7, 2005 due to conflicts with the personal schedules of Committee members and staff.

3. Minutes:

There were no questions or corrections regarding the Minutes

It was moved by Charlotte Townsend, seconded by Gary Hornbuckle and unanimously carried, to approve the minutes of the Reclamation Management Committee meeting held on October 22, 2004, as submitted.

4. Operations & Maintenance of the Project:

4-A. Treatment Plant Operations & Maintenance (“O&M”)

The Committee received a written report from CAWD Treatment Plant Superintendent, Mark Scheiter, dated January 5, 2005 regarding treatment plant operations for the period of November through December 2004. It was reported that the tertiary treatment facilities had been shut down for a major part of the report period due to wet weather and regular preventative maintenance had been undertaken during this time. Representatives of the U.S. Filter Company were present at the treatment plant, beginning in early December, to assemble additional membrane banks for the Micro-filter/Reverse Osmosis (“MF/RO”) Pilot Plant. Also, Mr. Scheiter reported that in order to relieve pressure on the secondary effluent outfall line on December 30 approximately 1.3 million gallons of tertiary treated wastewater had been discharged to the Carmel River.

CAWD General Manager, Ray von Dohren provided supplemental comments and answered questions from Committee members relating to the treatment plant operating report. He said the amount of tertiary treated wastewater discharged to the Carmel River now totaled 2 million gallons, and that CAWD would probably continue tertiary discharges to the River the following week. He noted that the District had tested both the tertiary wastewater and the river water, and determined the tertiary wastewater was safe and much better quality than the river water, i.e. 2.2 parts per million (“ppm”) coliform counted compared to 2,400 ppm coliform in the river water. Joyce Stevens asked whether the discharge to the river was okay with the Central Coast Regional Water Quality Control Board (“Regional Board”). Mr. von Dohren responded that the Regional Board had not yet decided whether it will fine the District or issue any kind of sanction at all. He said if the law or regulations require the Regional Board to find any kind of violation against CAWD, it will apply to the tertiary discharge permit and not to the National Pollution Discharge Elimination System (“NPDES”) permit.

Charlotte Townsend inquired how long it would take CAWD to complete all repairs to the main discharge line to Carmel Bay. Mr. von Dohren estimated that all of the work would probably not be completed until the Fall of 2005. He said that a 125-foot section of the discharge line still needed attention, and that marine repair workers could not get to that section due to unsettled conditions of the sea.

Gary Hornbuckle asked if the higher electrical rates that Pacific Gas and Electric Company (“PG&E”) had recently announced would have a significant cost impact on the reclamation project. Mr. von Dohren responded that he was not yet aware of the specific rates that would apply to the project, but that CAWD would try to modify treatment plant operations to reduce electrical requirements during peak periods identified by PG&E. In addition, he said the District was in the process of installing micro-turbines that would produce electricity on site. He indicated that the micro-turbines would be powered by methane gas, which is a byproduct of the treatment plant digester. Mr. von Dohren estimated annual electrical savings would be in the neighborhood of $60,000 based on current PG&E rates.

There being no further questions or comments, the written and oral reports regarding Treatment Plant O & M were received for information purposes and no action was required or taken by the Committee.

4-B. Distribution System O&M

PBCSD District Engineer, Michael Niccum, reviewed his written Distribution System Operations Report, dated January 7, 2005. Mr. Niccum indicated that the distribution system had operated normally and that all required maintenance had been performed. He reported completion of a cathodic protection system on three sections of recycled water pipeline most susceptible to corrosion located in the vicinity of Pebble Beach Golf Links and near the driving range and Forest Lake Road. Mr. Niccum noted that water use charts from the last water year had been included in the report, which cumulatively now provide ten years of data. Mr. Hornbuckle asked why water use at the Shore Course of the Monterey Peninsula Country Club appeared to be much higher than other golf courses. Mr. Niccum responded that the Shore Course had been completely rebuilt and the additional water use was necessary to establish the new turf, and water use would be reduced over time as irrigation requirements were better known.

There being no further questions or comments, the Distribution System O & M Report was received for information and no action was required or taken by the Committee.

4-C. Consolidated Financial Statements

Accountant Barbara Buikema reviewed the financial statements for the period from July 2004 through September 2004. She said that data was not yet available for the second quarter of the fiscal year. Ms. Buikema reported that on September 30^th the Balance Sheet indicated a balance of $253,007 in the Operation & Maintenance (“O&M”) Account (with $195,670 actual cash in the County O&M Account on December 31^st), $300,060 in the O&M Reserve, and that there was net cash income of $335,295 through September 30th, which indicated a positive variance of $87,441.

Ms. Buikema also noted that CAWD treatment plant expenses were exceeding budget by slightly less than 16%, primarily due to labor being 48.5% over budget and operating supplies running more than 200% above budget. Also, $20,733 of unbudgeted expenses were incurred for the Carmel River Lagoon project through the month of October, with about $16,000 of labor and a little less than $5,000 of materials expense, which will be charged to CAWD, PBCSD and the State Parks Department. She also advised the Committee that before the next financial statements are prepared the nominal balance remaining from the original project Construction and Operations Fund would be exhausted and the Fund would be zeroed out. Thereafter, she said all capital expenditures would be met from the O&M Budget. In response to Ms. Stevens’ inquiry, Ms. Buikema and Mr. von Dohren indicated they were unsure of the reasons for the apparent increase in labor costs during the report period, and would investigate and report back to the Committee with the information.

It was moved by Joyce Stevens, seconded by Charlotte Townsend, and unanimously carried, to accept as submitted, the CAWD/PBCSD Reclamation Project Financial Statements for the period July 2004 through September 2005; and, further, that staff investigate the reasons for the additional labor costs at the tertiary treatment plant for the period of July through September 2004, and report back to the Committee at its next meeting.

5. Status reports concerning Phase II (Expanded) Reclamation Project:

5-A. Advanced treatment facilities:

General Manager von Dohren reported orally regarding the status of planning and implementation of the advanced treatment plant component of the Expanded Reclamation Project, which will include micro-filtration and reverse osmosis facilities (“MF/RO”). He described the two main tasks that CAWD staff is now undertaking: first, a dilution analysis to determine qualitative parameters of the reverse osmosis process concentrate that will be discharged in the CAWD outfall line; and, second, continuing work to assemble and operate the MF/RO pilot plant. Mr. von Dohren said the initial dilution data appears satisfactory and that the first staff training session with U.S. Filter representatives was productive. He indicated the training included review of operating protocols for both micro-filtration and reverse osmosis processes, with particular attention to controlling potential bio-fouling of the reverse osmosis units. In response to Ms. Stevens’ request for further clarification of references to “protocols” and “SOP’s”, Mr. von Dohren explained that the micro-filters will receive secondary-treated effluent from the treatment plant’s secondary system, which will be processed through the micro-filter units and then that water will be sent to the reverse osmosis units for further filtering. He said while the reverse osmosis units will filter out virtually everything, some constituents must be left in the water to meet irrigation requirements. Therefore, the reverse osmosis processed water will have to be blended back into the micro-filtered water. Mr. von Dohren said that getting the proper ratios of blended water and discharged concentrate is why it is necessary to establish protocols and standard operating procedures or SOP’s. In technical terms, he noted protocols refer to the establishment of data points for each function of the filtration and blending process. Also, in response to Ms Stevens’, request Mr. von Dohren indicated CAWD staff could provide a demonstration of the pilot MF/RO facilities for members of the Reclamation Project Management Committee. Responding to Mr. Hornbuckle, Mr. von Dohren described the physical characteristics of the MF/RO pilot plant, and indicated that CAWD wished to operate the facility for three more months.

There were no further questions or comments from the Committee.

5-B. Forest Lake Reservoir:

PBCSD District Engineer Michael Niccum reviewed his written report, dated January 7, 2005 regarding the status of planning for the Forest Lake Reservoir component of the Expanded Reclamation Project. He reported that PBCSD has circulated plans and specifications for construction of Forest Lake Reservoir to contractors interested in submitting bids for the project. Mr. Niccum noted that 13 contractors had submitted applications to be pre-qualified for bidding on the project, and that the District had subsequently qualified 8 firms, which were listed in the written report distributed to the Reclamation Management Committee. Bids will be opened on January 20, 2005 and staff plans to present a recommendation on January 28^th to the PBCSD Board of Directors for award of a construction contract. He noted the District’s award of contract will be dependent on a commitment from the Pebble Beach Company to reimburse the District for its construction costs. Mr. Niccum said the District desires to issue a Notice to Proceed to the contractor in March in order to allow sufficient time for the major part of the work to be finished during the dry season in 2005, and to begin filling the reservoir in the wet season. He said the construction cost estimate is still $11 million.

In response to Ms. Townsend’s question, Mr. Niccum clarified that the reservoir overflow line was sized to meet State requirements for emptying the reservoir under emergency conditions, and that the dissipation structure, which will be located off site at the end of the overflow line, is intended to reduce the force of water that is discharged from the overflow line. And, in response to Ms. Stevens’ inquiry, Monterey Mechanical, Inc. was identified as a pre-qualified contractor who had subsequently indicated that it had decided not to enter a bid on the project as a general contractor.

There were no further questions or comments from the Committee.

5-C. Financial Planning

Mark Stilwell reported orally regarding Pebble Beach Company progress in raising funds through the sale of potable water entitlement rights to finance Expanded Reclamation Project improvements. He said water sales had generally gone well to date, and estimated that within a week the amount of water purchase applications should total about 80 acre feet valued at approximately $16 million. Mr. Stilwell said he was hopeful that amount would be sufficient to complete Forest Lake Reservoir and also get started on the advanced treatment facilities. He confirmed that Pebble Beach Company is ready to proceed, but first wants to see the results of the Forest Lake bid process. If the Forest Lake Reservoir bids are satisfactory, he said PBCo will seriously consider making a commitment to PBCSD to finance the project, with the understanding PBCo will be assuming a risk that it will ultimately sell enough water to keep from using company funds to pay for the rest of the advanced treatment component of the Expanded Reclamation Project. Mr. Stilwell said PBCo has still not been able to resolve the issues raised by attorney Richard Rosenthal, which could pose questions concerning water rights sold by PBCo. He said Mr. Rosenthal represents parties who contested the sale of water rights by the owners of Robles del Rio Lodge in Carmel Valley. An agreement controlling transfer of water rights within County unincorporated area was negotiated and approved by the Court between the County, owners of Robles del Rio Lodge and the parties represented by Mr. Rosenthal. Mr. Stilwell indicated that PBCo’s water entitlement under the Reclamation Project predates the Robles del Rio settlement, and that agreement is not applicable to any of PBCo’s water entitlements derived from its financial sponsorship of the Reclamation Project. He said that because PBCo cannot accept risking the validity of the water rights that it sells to finance the Expanded Reclamation Project, if it cannot resolve the issues raised by Mr. Rosenthal, then PBCo may file an action with the Court seeking declaratory relief. Ms. Stevens asked Mr. Stilwell if there is not some way to compromise with Mr. Rosenthal and those he represents, as it was her understanding they only want to know how much water is used by those who purchase PBCo water. Mr. Stilwell responded that PBCo does not want those who purchase PBCo water rights to be treated differently than other water consumers within the Monterey Peninsula Water Management District service area. He said separate meters and examination of water bills would be discriminatory, and that PBCo will go to court if necessary to confirm any water it sells will not be subject to the Robles del Rio settlement.

There were no further questions or comments from the Committee.

6. Miscellaneous Information or Announcements from Members, Staff or Visitors:

Andrew Bell, Planning and Engineering Manager/District Engineer, MPWMD, reported that all implementation agreements for the Expanded Reclamation Project were in final form and ready for execution by the participating parties.

Mr. Stilwell reported that Monterey County Planning Commission hearings on the Final Draft Environmental Impact Report for PBCo’s Forest Development Project would begin on January 26^th in the Monterey County Courthouse in Salinas.

7. Closed Session

The Committee did not meet in a closed session.

8. Adjournment & Next Meeting Date:

There being no further business at 10:40 a.m., it was moved by Joyce Stevens, seconded by Charlotte Townsend, and unanimously carried to adjourn to the Committee’s next regular meeting on Friday, March 18, 2005 at 9:30 a.m. in the PBCSD Boardroom at 3101 Forest Lake Road, Pebble Beach.

Respectfully submitted:

(s) Richard Andrews

Secretary to the Committee