Reclamation Management Committee

DRAFT

Carmel Area Wastewater District/Pebble Beach Community Services District

Pebble Beach Company

WASTEWATER RECLAMATION PROJECT

MANAGEMENT COMMITTEE

MINUTES

Meeting of July 8, 2005

Pebble Beach Community Services District Boardroom

Forest Lake & Lopez Roads, Pebble Beach, CA

1. Call to Order

Ray von Dohren, CAWD General Manager, serving as facilitator, called the meeting to order at 9:36 a.m. All members or alternates were present, including: Robert Kohn and Charlotte F. Townsend, Carmel Area Wastewater District Board of Directors (CAWD); Richard D. Verbanec 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:

Rick Dickhaut, Administrative Services Manager/Chief Finance Officer, Monterey Peninsula Water Management District (MPWMD)

Robert R. Wellington, Legal Counsel, CAWD/PBCSD

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

Barbara Buikema, Accountant/Controller, CAWD

Brent Reitz, Project Engineer, PBCo

Tom Peterson, Production Superintendent, Monterey District, Cal-Am Water Company (“Cal-Am”)

Fay A. Webb, Secretary to the Board, CAWD

2. Period for welcoming visitors, receiving public comment regarding matters not listed or considering changes to the agenda:

Following introductions, there were no comments from visitors or Committee members regarding matters not listed on the agenda, and no requests were received to change the content or order of the agenda.

3. Minutes:

Gary Hornbuckle questioned the difference between the two references made to the balance in the Operation & Maintenance account; one indicating a balance of $378,299 and one indicating a balance of $258,253. Accountant Buikema replied that the higher balance was as of January 31, 2005 and the lesser was as of May 20, 2005.

There were no corrections made to the Minutes.

It was moved by Mark Stilwell, seconded by Gary Hornbuckle, and unanimously carried, to approve the minutes of the Committee meeting of May 20, 2005.

4. Receive and consider reports relating to operations and maintenance (“O & M”) of Project:

4-A. Treatment Plant O & M

The Committee received a written status report from CAWD Treatment Plant Superintendent, Mark Scheiter regarding treatment plant operations.

Gary Hornbuckle questioned the excessive reports of failure of the MF unit on “Filtrate Flow Low Low” alarm. CAWD General Manager, Ray von Dohren, explained that at the time the pilot plant was running with only CAWD treatment plant staff, and no attendance by US Filter personnel, there was a low level alarm that indicated the flow leading to the MF was low. Plant personnel would come in, reset it and keep the unit running, ignoring the alarm, because it had no significant impact to continued pilot plant operation. Subsequently, the flow to the RO unit shut down. Mr. von Dohren advised that, at the present, now that the project is fully staffed, US Filter, Carollo Engineers and CAWD staff have gotten together and are investigating the cause of the reoccurring low level alarm.

There were no further questions or comments.

The written and oral reports regarding Treatment Plant O & M were received as informational and no action was required or taken by the committee.

4-B. Distribution System O & M; reclaimed and potable water use

PBCSD District Engineer, Michael Niccum, reviewed his Distribution System Operations Report, dated July 8, 2005 and indicated that it had been a routine period.

He pointed out that total water demand year to date is a little below the 10-year average usage for this point of the water year. He indicated that the June flushing cycle used 17 acre feet of potable water and that another flushing cycle is scheduled for the following week

There were no questions regarding this report.

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 from July 2004 through February 2005

Barbara Buikema reviewed the financial statements for the period from July 2004 through February 2005. She stated that February is a slow time for the Project and that there has not been a lot of activity to report. Accountant Buikema reviewed the various account balances and account activity. She pointed out that cash in the County O & M account is $150,000, and, in addition, there is now cash in the newly opened account at First National Bank in the amount of $38,000. This account will now be used exclusively for the payment of O & M costs, with the County O & M account acting as a sweep account to transfer funds into First National Bank

Barbara stated that the O & M revenue and Expense account has a positive variance of $125,000 and shows a net cash income through February 2005 of $339,000.

Ms. Buikema stated that she had no further comments to offer regarding the financial statements and would respond to any questions the Committee members had.

Gary Hornbuckle questioned a payment to Stone & Youngberg for a quarterly remarketing fee in the amount of $7,900. Mark Stilwell explained that there is a quarterly fee imposed by Stone & Youngberg, acting as broker, for remarketing the COPs on a weekly basis. Mr. Stilwell asked when the next principal payment would become due. Ms. Buikema replied that it will be due July 1. Mr. Hornbuckle stated that, upon looking at the balance sheet, it appears that the liability for the Certificates of Participation would result in a net loss and asked how that will be compensated. Mr. Stilwell replied that the Pebble Beach Co. writes a check to the Project for the amount of net loss. Mr. Hornbuckle asked if eventually, the loss would be turned into a positive amount. Mr. Stilwell answered that it would not and, that the Company would continue to provide the capital for payment of the COPs.

Following questions and answers, it was the consensus of the Management Committee to accept, as submitted, the CAWD/PBCSD Reclamation Project Financial Statements for the period July 2004 through February 2005.

5. Receive and consider CAWD/PBCSD Reclamation Project Budget for Fiscal Year 2005-2006 (July 1, 2005 through June 30, 2006)

Barbara Buikema pointed out that the cost of water sales reflect a 5% increase. She also advised that there will be an increase in interest income as a result of funds being deposited for Phase II construction in Wells Fargo Bank. She further stated that the budget includes a 3% COLA salary adjustment for CAWD employees. Ms. Buikema reviewed further adjustments that had been made to the 2005/2006 Budget, including the provision for earthquake insurance for Forest Lake in the amount of $7,500. Gary Hornbuckle questioned whether earthquake insurance on the reservoir was worthwhile. Michael Niccum responded by saying that he would check with the District Finance Officer Suha Kilic to determine if it is required to have earthquake insurance on all of the project elements in order to have it on any. Discussion ensued regarding the necessity of having earthquake insurance on the reservoir. Mr. Niccum pointed out that the matter had been discussed previously at the beginning of the Project and earthquake insurance was provided for the reclamation storage tank. It was the consensus of the Committee that $7500 for insurance on the reservoir was a reasonable cost for one year.

A question arose concerning the fees being charged by Arbitrage Compliance Specialists and the actual services the company provides. Rick Dickhaut, MPWMD, will write a letter to Arbitrage asking them to explain why the charges are so high and what their duties have entailed to substantiate their fee. He will also attempt to get another company to provide the service at a lower cost.

Barbara Buikema continued with the review of the budget and stated that the contribution to the capital reserve fund has been increased from $5,300 to $70,000 in order to generate the funds necessary to meet the required “sinking fund” of $2M within the next 17 years as provided for in the financial agreements.

Barbara Buikema moved on to the Capital Budget for FY 2005/06 and pointed out that the proposed budget for capital improvements to the advanced treatment project is estimated at $6M. Gary Hornbuckle questioned the validity of the $6M estimate. Ms. Buikema replied that the figure was purely an estimate.

Rick Verbanec asked how much uncertainty there was in estimating the $6M. CAWD General Manager, Ray von Dohren, replied that the Project had just been restarted the previous week after some delay and, at this point, there is no way of estimating more closely what the costs will be in the coming fiscal year. That number will be revised as the Project advances.

Ms. Buikema presented a chart showing the reclaimed and potable water sales since 1994. Mark Stilwell questioned whether the figures included Cal-Am charges. Ms. Buikema replied that they did, including fees.

Ms. Buikema reviewed the capital projects and capital purchases planned by CAWD and the percentages to be shared by the Reclamation Project.

It was moved by Charlotte Townsend, seconded by Mark Stilwell, and unanimously carried, to approve the draft CAWD/PBCSD Reclamation Project Budget for Fiscal Year 2005/06.

6. Receive status reports concerning Main Components Phase II (Expanded) Reclamation Project:

6-A. Planning and Design of Advanced treatment: micro-filtration/reverse osmosis facilities

General Manager von Dohren reviewed the staff report and further reported orally that permission had been received from the Pebble Beach Company to resume work on the full scope of the MF/RO Project and complete the preliminary engineering tasks. He stated that Carollo Engineers is developing a revised project scope and, coordinating with Camp, Dresser and McKee and US Filter, to produce a final budget for design costs. The team is currently considering a Project that would include somewhere around a 35% design and then moving into a design/build type project. Mr. von Dohren further stated that, as soon as there are elements to build, construction will begin with additional design to be done at the same time. Other costs of the MF/RO design/build will be determined and presented to the Pebble Beach Company for review, negotiation and approval. He stated that the only uncertainty at this time is whether the Pebble Beach Company or CAWD will hold the contract with Camp, Dresser and McKee for construction of the Project. Mr. von Dohren said that the supply part of the Project with U.S. Filter will be a subcontract with Camp, Dresser and McKee or the Company or, CAWD will purchase the equipment directly. Mr. von Dohren advised that work done in the last week was primarily getting the team back together. He said that the first item to address is the problem of the low water alarm and the fact that the R/O unit shut off. CAWD staff could not determine if the low alarm was the result of a low water condition or a bio-fouling occurring in the microfilters. The preliminary results are that it was caused by a low water condition. Mr. von Dohren explained the need for the chlorminator in regulating the amount of chloramines in the effluent, and in feeding chloramines to the MF/RO facilities. Mr. von Dohren indicated that there is a need for modifications to the secondary plant in order to make sure that the plant will consistently denitrify the effluent to control the amount of ammonia entering MF/RO system, but that Carollo Engineers have indicated that there is no necessity to modify the outfall to secure the proper dilution of effluent.

Mark Stilwell asked what the next step would be in resuming the Project. Ray von Dohren replied that, prior to the company agreeing to start the project again, CAWD staff met with Carollo to see if there was a way to reduce the design cost by modifying the type of design. It was decided that, rather than proceeding with a typical design contract, which would involve a ten percent, fifty percent, seventy percent design review, making comments regarding the design and then passing them back to the engineer for changes, there would be a series of workshops at key points where Carollo would present the design to staff, and allow staff one week to work with Carollo to make any recommended changes. Carollo believes they can save a lot of time and cost by doing the design in that manner, rather than the traditional way. CAWD staff feels that would work very well and are willing to work with Carollo in that manner. Carollo is working now with U.S. Filter and CDM on elements of the design in an effort to finish the scope and present revised costs.

Mr. von Dohren also advised that the basic environmental work still has to be completed as well as using Carollo’s data to evaluate the environmental impact from the RO concentrate that will be discharged into the Bay. Mr. von Dohren stated the last thing would be to work with the Regional Board to revise our waste discharge permit. CAWD now has a reclamation permit to supply reclaimed water to the Project. He advised that the criteria which must be met under that permit will not change, but that it will still be necessary to obtain a new permit. The new permit will have no requirements for the elimination of salt, but there may be requirements for the brine.

Gary Hornbuckle pointed out that during the prior meeting of the Reclamation Management Committee meeting the budget for the Project was upwards of $20M. He asked if the Pebble Beach Company had agreed to accept the additional cost. Mark Stilwell advised that the Company, Carollo Engineers and CAWD, working together as a team, has brought the cost down to approximately $18M. Ray von Dohren said that CAWD will run the Project the same as any other project that they might have, which will give them the opportunity to monitor costs. He said that the concern of CAWD and PBCSD is the fact that, at the completion of the Project, both Districts will assume responsibility for water quality and quantity and, that will be a major factor in determining and controlling costs. Mr. von Dohren stated that a factor in determining costs will be maintaining proper capital; implementing a renewal and replacement program, which ultimately all the golf courses have to pay for; and what the level of operation and maintenance costs will be.

Brent Reitz asked when Carollo Engineers would be back with the initial design cost. Mr. Von Dohren replied that he would expect to hear from Carollo within the next couple of weeks.

6-B. Forest Lake Reservoir Construction Project

PBCSD District Engineer Mike Niccum, in addition to his written report, presented a slide show, together with comments, showing the progress made to date on construction of the Reservoir. Mr. Niccum answered questions from the Committee during the presentation.

6-C. Project Financing Status

Mark Stilwell reported that the Company had closed its third batch of water sales, proceeds of which were deposited with the Wells Fargo Bank account for construction funds. He further reported that three draw requests had been made, including one from CAWD. Mr. Stilwell stated that the price of water sales would be increased from $200,000 to $250,000 per acre foot as of July 15, 2005, due to the increased cost of the advanced treatment project. He hoped by raising the cost of the water, that people who were undecided about purchasing water would make a decision to do so. Mr. Stilwell advised that he had contacted Wells Fargo Bank to obtain bank statements on the construction fund account

Mr. Stilwell had questioned staff at the MPWMD for information regarding how much of the newly purchased water is currently being used. Rick Dickhaut of the MPWMD stated that he will follow up on the matter and report back to Mr. Stilwell.

Robert Kohn asked the status of the lawsuit presented by Attorney Rosenthal regarding the possible applicability of the “Robles del Rio Agreement” to the MPWMD’s approval of the PBCo. water sales. Mark Stilwell reported that it is not an active lawsuit, but a threatening letter which has not been pursued so far.

Mark Stilwell reported that there are several parties outside of Pebble Beach who are interested in the water sales. However, they will have to contact the MPWMD in order to expand the area in which the PBCo. can sell the water. The Company has no intention of doing that at this time. There is no time limit on selling the water within the Del Monte Forest, as the contract is good until 2075, at which time further evaluation would be made.