Cal Am’s desal project has bureaucratic momentum, even with open questions.

Since 2010, California American Water, the investor-owned utility that provides water to the Monterey Peninsula, has pursued building a desalination project to bolster the local water supply and put an end to its illegal overpumping of the Carmel River.

In that time, the volume of documents born out of that effort – including by those trying to kill the project – could fill a warehouse.

Meanwhile, a cheaper project – Pure Water Monterey, which recycles wastewater – has outpaced Cal Am’s efforts, and has already added enough water to the local portfolio to allow Cal Am to stop its overpumping, although a cease-and-desist order from the state remains in effect. And with the Pure Water Monterey expansion coming online later this year, the Peninsula’s supply will exceed 12,000 acre-feet. In the last water year, meanwhile, the Peninsula’s demand dipped below 9,000 acre-feet.

That raises some obvious questions: Why build a costly desal project if the water isn’t needed? (For Cal Am, the incentive is clear: profit.) Isn’t the California Public Utilities Commission supposed to ensure customers aren’t saddled with unnecessarily high rates?

The CPUC approved Cal Am’s project in 2018 when the possibility of a Pure Water Monterey expansion was unknown.

The California Coastal Commission approved a scaled-down version of the project in 2022 – with a slew of conditions – despite objections from the City of Marina, where it would be located, and others who argued the water was no longer needed.

Cal Am has said it plans to start construction of the project by the end of the year, but in order for that to happen, certain dominoes need to fall the right way. The most immediate inflection point will be a pending decision by a CPUC administrative law judge about the Peninsula’s projected water demand in the coming decades. Cal Am and other parties – including Monterey Peninsula Water Management District, Marina Coast Water District and the CPUC’s independent Office of Ratepayer Advocates – submitted their future demand estimates last May.

Nearly a year has gone by and there is still no decision about which of those assessments is most accurate, and the CPUC extended its deadline to June 30. The Coastal Commission’s approval included a condition that, before Cal Am is issued a permit, the final determination by the CPUC must show a need for the water by 2050.

Cal Am projected 14,480 acre-feet of demand by 2050 – which would trigger a need for desal – while the other projections were far less, the highest being 11,203 acre-feet of demand by 2050, well below the threshold needed to move forward with desal.

Cal Am officials expect to get approval – they’ve said they anticipate starting construction by the end of this year. But there are a variety of other mandatory milestones and conditions imposed on the project in play. One is that, per CPUC’s 2018 approval, if the expansion of Pure Water Monterey moved forward – as it has – Cal Am would need to outline to the CPUC its operational strategy about how the desal project would impact the company’s shareholders versus its ratepayers. That has not yet happened.

The Coastal Commission’s approval also requires Cal Am to submit a relief program to the Coastal Commission for the low-income ratepayers in Cal Am’s service area to offset the increased water rates related to desal. Cal Am has not yet submitted anything to the CPUC on that matter, and the CPUC is solely authorized to approve Cal Am’s rates.

Another open question is the project’s cost. CPUC’s approval capped the cost at $279.2 million, but MPWMD’s estimation, based on expenses Cal Am has filed to the CPUC, is that Cal Am has already spent well over $100 million on the project – maybe even closer to $200 million – and construction hasn’t even started yet.

How the project will be financed is also a question. CPUC’s approval required a “securization” process to reduce financing costs, i.e., gain lower interest rates through the help of a public agency like MPWMD. But MPWMD backed off after Cal Am secured even cheaper financing from the State Water Board’s State Revolving Fund. However, that financing was revoked in late 2022 due to a “lack of progress.” Cal Am has not since approached MPWMD on that matter, and has declined to answer the Weekly’s question about how the project will be financed.

There is also a question about California Environmental Quality Act requirements: the Coastal Commission’s approval calls for the project to be built in two phases – the first for a 4.8-million-gallons-per-day project that must operate for a minimum of two years before being expanded to a 6.4-million-gallons-per-day project, the size approved by the CPUC. That would essentially mean two construction projects, which was not contemplated by the project’s environmental review.

Lastly, there is outstanding litigation with the City of Marina as to whether Cal Am – with its lease of the former Cemex sand mine property – has the right to export water from the property.

Josh Stratton, a spokesperson for Cal Am, offered only a short, broad response to a detailed list of questions from the Weekly. He writes that the CPUC already approved the project, and adds, “We are a highly regulated utility which must receive CPUC approval for rate adjustments.”