Water board rejects terms with California American Water, throwing water crisis solution into question.

After months of disagreement over two specific terms in a contract to purchase recycled water, buyer California American Water and negotiators from the two public agencies selling the water finally came to an agreement. The agreement presented a crucial step in financing an expanded recycled water project seen by many to be the answer to the Monterey Peninsula’s water shortage.

However, when one of the agencies, the Monterey Peninsula Water Management District, which oversees water rights and distribution for the region, presented the finalized contract to its board of directors on Aug. 16, the board rejected the terms and sent the sides back to the table. The issue? The two specific terms that took months for negotiators to figure out. 

This sets up a tight two-week timeline for negotiators to iron out their monthslong disagreements before the board of directors for the other public agency, Monterey One Water—the region’s sewage facility leading the expansion of the recycled water project, known as Pure Water Monterey—meets on Aug. 30 to vote on the same contract. An agreement with Cal Am to purchase the water is seen as the quickest way to finance the Pure Water Monterey expansion, a project that will take more than two years to build but is expected to set the region up with enough water for the next two decades.  

All of this is set against an impending deadline and a simmering legal battle. As retribution for years of significantly overdrafting the Carmel River, California’s State Water Resources Control Board has given Cal Am until Dec. 31, 2021 before the state cuts the utility’s ability to continue using the river as its central source of drinking water for the Peninsula. Cal Am, the investor-owned water utility, is also facing a widespread loss of public trust and is engrossed in a legal battle with the water management district over a voter-approved public buyout of the utility. 

The disagreement

Before agreeing to buy the water from Monterey One Water and the MPWMD, Cal Am wants two assurances from the agencies. 

The Pure Water Monterey expansion has committed to adding 2,250 acre-feet of water per year to the local system—an acre foot is about 326,000 gallons of water, or enough water for around two households per year—which would bring the total recycled water to 5,750 AF per year. Cal Am wants a guarantee from the staff and boards of Monterey One Water and MPWMD that if the Pure Water Monterey expansion fails to deliver the additional 2,250 acre-feet of water for three consecutive years, then the agencies will support Cal Am’s effort to build its proposed-but-since-stalled desalination plant. 

The desalination plant has been seen as a rival project to the Pure Water Monterey expansion. Cal Am’s proposed project would have brought more than 6,000 acre-feet of water to the Peninsula per year; however, objectors claimed it was too expensive and that the Peninsula did not need as much water as it proposed. Groups also raised concerns that the desalination plant’s system would have caused environmental issues, namely, it could have forced more seawater intrusion into the wells used for drinking water by the Marina Coast Water District’s system. The project has since lost public support and has been rejected, as is, by the California Coastal Commission. 

Several board members questioned the legality of committing future boards to supporting a private project. Alvin Edwards, a MPWMD board member, says he cannot support Cal Am’s terms. 

“They want us to submit to a project they have not even passed,” Edwards says. “We don’t need a desal plant. I think this water purchase agreement is very important but we have to be willing as a board to go beyond Cal Am, even if we have to finance [the Pure Water Monterey expansion] ourselves.” 

Dave Stoldt, general manager for the MPWMD and the agency’s chief negotiator, says he sees things differently than his board of directors. 

“If we modify the language to meet the interest of the public and board it will begin to look like a Christmas wish list,” Stoldt says. “We can’t be in negotiations if we refuse to negotiate. If we went the easy way and chose to strike that term, then we may have to make concessions elsewhere.” 

Stoldt says he and the negotiators from Monterey One Water were okay with the language because they felt it was such a “remote possibility” that the project defaults on its water commitments; the initial Pure Water Monterey project defaulted in its first year, 2020, only providing 990 acre feet of water after committing to 3,500 acre feet per year. The facility is on track to deliver the committed 3,500 acre feet in 2021. 

Catherine Stedman, spokesperson for Cal Am, says it was “unfortunate” that the MPWMD took “several steps back” after the agencies and the utility finally reached an agreement the sides “could live with.” She calls Cal Am’s terms “reasonable” as the utility is taking a risk as it could face penalties and fines if Pure Water Monterey fails to deliver adequate water. 

“It’s really important not to overlook that the proposed agreement would require the District to support desal only if the Pure Water Monterey Expansion Project does not deliver the water it promises,” Stedman writes via email. “The District has no other project and has put all of its eggs in the Pure Water Monterey expansion basket.  If recycled water fails to solve the community’s water supply shortage on its own, it is reasonable to ask the project partners to support the only other new water supply that has been proposed.” 

Although it is seeking future support on the project, Cal Am has also asked the agencies to not object to the utility’s effort to recoup the money it has put into its effort so far to build a desalination plant, now that the community has chosen the route of Pure Water Monterey. MPWMD board members also rejected this, as there was no estimate as to how much money they would want to recover. Sunk cost recovery would come at the expense of ratepayers. Edwards says if the board’s job is to protect ratepayers, then they cannot agree to this without knowing exactly how much money the utility would seek to recover. 

Board member Karen Paull said Aug. 16 that if the sides cannot reach an agreement, they are preparing to look at other avenues to finance the expansion project. The board agreed to come back no later than Oct. 18 to revisit the contract terms. 

The board of directors for Monterey One Water will meet to discuss the contract on Monday, Aug. 30. The board's Recycled Water Committee will also discuss the issue at its Thursday, Aug. 19 meeting.