ORDINANCE RE: REVISING RULE 23.5 AND ADOPTING ADDITIONAL PROVISIONS TO FACILITATE THE FINANCING AND EXPANSION OF THE CAWD/PBCSD WASTEWATER RECLAMATION PROJECT (9-2-03 CLEAN VERSION)

BENEFITED PROPERTIES AND WATER ENTITLEMENTS

OWNER		ORIGINAL WATER ENTITLEMENT (af/yr)		QUANTITY OF WATER CURRENTLY BEING PUT TO USE (af/yr)		QUANTITY OF WATER ENTITLEMENT REMAINING UNUSED (af/yr)
Pebble Beach Company		365.000		9.298		355.702
Macomber Estates		10.000		9.654		0.346
Griffin Trust		5.000		3.716		1.285

All real property within the boundaries of Del Monte Forest as defined in Exhibit "B" and such additional real property as has been designated and included as Benefited Properties under the Fiscal Sponsorship Agreement pursuant to amendments thereto as previously approved by the MPWMD Board.

1         .___________________________________________________________ The Monterey Peninsula Water Management District (“MPWMD”) is charged under the Monterey Peninsula Water Management District Law with the integrated management of the ground and surface water resources in the Monterey Peninsula area.

2.         MPWMD has general and specific power to cause and implement water conservation activities as set forth in Sections 325 and 328 of the Monterey Peninsula Water Management District Law.

3.         In Ordinance No. 39, MPWMD found and determined that it was in the best interest of MPWMD and the inhabitants thereof to provide for the design and construction of a tertiary treatment facility at the wastewater treatment plant owned by the Carmel Sanitary District (“CSD,” now the Carmel Area Wastewater District (“CAWD”)) to produce recycled water which could be used in lieu of potable water for the irrigation of vegetated areas within the Del Monte Forest, a distribution system capable of distributing the recycled water from the facility to a point of distribution in the Del Monte Forest for further distribution to such vegetated areas, and recycled water irrigation systems on each of such vegetated areas (the “Original Project”).

4.         Ordinance No. 39 made various additional findings and set forth a method of financing the Original Project by selection of a Fiscal Sponsor who would guarantee the costs of the Original Project in exchange for the Water Entitlement as defined in Ordinance No. 39.

5.         Pursuant to the provisions of Ordinance No. 39, MPWMD on October 3, 1989, adopted Resolution No. 89-21, A Resolution of the Board of Directors of the Monterey Peninsula Water Management District Approving the CSD/PBCSD Wastewater Reclamation Project, a Financing Plan Therefor and MPWMD’s Participation in such Project and Financing Plan; Selection of a Fiscal Sponsor pursuant to Ordinance No. 39; and Execution and Delivery of the Wastewater Reclamation Project Fiscal Sponsorship Agreement with Pebble Beach Company (the “Resolution”).  The Resolution made various findings, approved the Original Project, approved a financing plan for the Original Project, selected Pebble Beach Company (“PBC”), J. Lohr Properties, Inc. (“Lohr”), and the Hester Hyde Griffin Trust (“Griffin”) as the Fiscal Sponsors for the Original Project, dedicated a Water Entitlement of 365 acre feet annually (“af”) to PBC, 10 af to Lohr, and 5 af to Griffin, approved the Wastewater Reclamation Project Fiscal Sponsorship Agreement (dated as of October 3, 1989) between MPWMD and PBC (the “Fiscal Sponsorship Agreement”) and approved the issuance of Water Use Permits to PBC, Lohr, and Griffin to “evidence” the Water Entitlement.

6.         The Fiscal Sponsorship Agreement and the actions taken pursuant thereto provide suitable guarantees of payment of all costs of designing, constructing, equipping, and operating the Original Project as required by Ordinance No. 39.  PBC, as stated in the Fiscal Sponsorship Agreement, has assumed the obligations of Lohr and Griffin as co-Fiscal Sponsors by providing all of the necessary guarantees and thus PBC is the sole Fiscal Sponsor for the Original Project for purposes of Ordinance No. 39 and the Fiscal Sponsorship Agreement.  All actions of MPWMD in the adoption of the Resolution, the terms of the Resolution itself, and the binding and enforceable effect of the Fiscal Sponsorship Agreement and all of its terms, and the obligations of MPWMD thereunder, were all validated by a final Judgment of Validation entered on July 12, 1990 in a validation action brought by MPWMD (Monterey Superior Court Case No. M21594).

7.         As contemplated by the Fiscal Sponsorship Agreement, to pay for the Capital Costs of the Original Project, MPWMD issued interest-bearing Certificates of Participation in 1992 in the principal amount of $33.9 million, the full payment of which (both principal and interest) is guaranteed by PBC.

8.         The facilities comprising the Original Project have been completed and are owned and operated by CAWD and the Pebble Beach Community Services District (“PBCSD”) pursuant to an agreement between such agencies.

9.         It was originally estimated that the production of recycled water by the Original Project would lessen consumption of potable water by at least 800 acre feet per dry year, thus liberating such potable water for other uses within the California-American Water Company (“Cal-Am”) service territory.

10.__________________________________________________________ The performance of the Original Project has not met the expectations of the parties to the Fiscal Sponsorship Agreement or the expectations of the parties to the Related Agreements (as defined therein), either with regard to quantity or quality, due to a number of factors beyond the consideration of any of the parties participating in the Original Project.  Prominent among these factors are the salt-sensitivity of the dominant grass species planted in the greens of many of the golf courses, inadequacy of the drainage facilities to conduct accumulated salts away from the greens, smaller than anticipated amounts of secondary effluent due to decreased flows of influent to the CAWD wastewater plant (resulting in part from consumers’ water conservation efforts), increased amount of salinity in the recycled water due to reduced influent flows caused by water conservation efforts, increased salinity added by water softening units (the demand for which increased as the source water became more saline), internal wastewater plant processes contributing additional salinity loading, the lack of sufficient data concerning the composition of the secondary effluent produced by the CAWD Wastewater Treatment Plant or concerning the water quality and water quantity requirements for golf course irrigation, and the absence of any seasonal storage of recycled water.

11.       PBC is willing to assist, and MPWMD desires that PBC assist, with the financing of an expansion of the Original Project (the “Project Expansion”), in conjunction with PBC’s continuing role in the financing and implementation of the Original Project, that, when implemented, will eliminate the need for reliance on supplemental potable water for the irrigation of vegetated areas within the Del Monte Forest (except in cases of an Emergency as defined in this ordinance), thereby conserving additional potable water.  The parties to the Fiscal Sponsorship Agreement and/or to the Related Agreements contemplate that the Forest Lake Reservoir, one component of the Project Expansion, will provide storage sufficient for                 days supply during the irrigation period, such that an Emergency (as further defined herein) will necessarily involve either (1) the damage to or the destruction of the Forest Lake Reservoir, (2) the destruction or other required interruption of facilities supplying Recycled Water to Forest Lake Reservoir at a time when storage in Forest Lake Reservoir has fallen below _____ acre feet, or (3) the destruction or interruption of facilities supplying Recycled Water from Forest Lake Reservoir to Recycled Water Irrigation Areas.  The financing and implementation of the Project Expansion will be made possible by making a portion of PBC’s existing Water Entitlement available for separate sale and conveyance to owners of residential property within the Del Monte Forest (defined in Exhibit “B”) for use solely on that property, and applying the proceeds therefrom to the costs of the Project Expansion and Original Project as more specifically described in Section Three of this ordinance. 

12.       This ordinance shall authorize PBC to separately sell and convey specified portions of its Water Entitlement through which it will raise funds to finance all Capital Costs of the Project Expansion as set forth in Section Three hereof, shall revise and amend Rule 23.5 of the Rules and Regulations of the Monterey Peninsula Water Management District as set forth in Section Four hereof, and shall adopt other provisions to facilitate the Project Expansion, as more particularly described below.  Ordinance No. 39, which is among the body of actions and agreements supporting the issuance of MPWMD’s Certificates of Participation as a tax-exempt financing and defining MPWMD’s obligations to the holders thereof, remains in full force and effect, with all of its terms, except to the extent its terms are amended by this ordinance.  Pursuant to Part VI of Ordinance No. 39, PBC as Fiscal Sponsor has agreed that the amendments to Ordinance No. 39 contained in this ordinance do not impair the interest of the Fiscal Sponsor.

NOW THEREFORE be it ordained as follows:

            Section One:  Short Title

            This ordinance shall be known as the Recycled Water Project Expansion Ordinance of the Monterey Peninsula Water Management District.

            Section Two:  Purpose

            It is the purpose of this ordinance to facilitate the financing of the Project Expansion.  This ordinance recognizes the existing annual dedication of 380 acre feet of potable water as the Water Entitlement, which is evidenced by Water Use Permits authorizing use within specific portions of the Del Monte Forest and adjoining areas pursuant to prior approval of the MPWMD Board, which portions are collectively defined as the “Benefitted [sic] Properties” in the Fiscal Sponsorship Agreement as amended, and provides that specified quantities of PBC’s existing Water Entitlement shall be made separately available for sale and conveyance to owners of residential property within the Del Monte Forest (as defined in Exhibit B) for dedication to and use solely on said property, with the proceeds therefrom to be applied exclusively to the costs of the Project Expansion and the Original Project as more specifically described in Subsection I of Section Three.  The Water Entitlement and Water Use Permits represent a portion of the potable water freed up by the implementation of the Original Project, which has not to date produced sufficient quantities of Recycled Water of a quality suitable for all irrigation needs of the golf courses located within the Del Monte Forest and and other vegetated areas to be irrigated with Recycled Water under Water Sale Agreements (“Recycled Water Irrigation Areas”). 

            The objective of Project Expansion is to provide sufficient quantities of Recycled Water of a quality suitable for irrigation of even the most water quality-sensitive plants located within the Recycled Water Irrigation Areas, and to completely eliminate the use of potable water for such irrigation (except during an Emergency as defined herein), which will enable additional potable water to be freed up.  This ordinance does not alter the continuing guarantees of PBC’s fiscal responsibility for the Original Project.  It establishes a specific method by which PBC will raise funds to finance all Capital Costs of the Project Expansion, and will cause certain additional revenues to be applied to the the costs of the Project Expansion and Original Project as more specifically described in Section Three of this ordinance.  Ordinance No. 39, which is among the body of actions and agreements supporting the issuance of MPWMD’s Certificates of Participation as tax-exempt financing and defining MPWMD’s obligations to the holders thereof, remains in full force and effect, with all of its terms, except to the extent its terms are amended by this ordinance. 

            Section Three:  Financing for the Project Expansion

A.        The Board having selected PBC as the Fiscal Sponsor pursuant to Part II of Ordinance No. 39 and based upon the irrevocable commitment of PBC to underwrite, be responsible for, assure and guarantee the full payment of the Financial Commitment (Capital Costs and Net Operating Deficiencies and Ancillary Project Costs of the Original Project set forth in the agreement deemed by MPWMD to be “necessary or desirable” pursuant to Part VII of Ordinance No. 39), MPWMD has granted the Water Entitlement and the General Manager has issued Water Use Permits to PBC, Lohr, and Griffin authorizing the expansion and extension of the Cal-Am water distribution system to provide connections to, and potable water service in specific annual quantities (in acre feet) for the use on and benefit of, the specific properties identified in the Resolution and the Fiscal Sponsorship Agreement (such annual quantities being specified, and such properties being identified as the “Benefitted [sic] Properties,” in the respective Exhibits “A” thereto as amended).

B.        In order to facilitate the financing of the Project Expansion, it is necessary to expand the scope of the Benefited Properties, thus making specified quantities of the existing Water Entitlement separately available for sale and conveyance to owners of residential property within the Del Monte Forest (as defined in Exhibit B) for dedication to and use solely on said property, with the proceeds therefrom to be applied exclusively to the costs of the Project Expansion and the Original Project as more specifically described in Subsection I of this Section Three. 

C.        In recognition of PBC’s commitment to raise funds to finance the Project Expansion through the sale of portions of its Water Entitlement (subject to the terms specified in this ordinance), PBC is hereby authorized to separately sell and convey to other owners of land within Del Monte Forest (as defined in Exhibit B), for residential use only, such portions of its Water Entitlement for such consideration and upon such terms and conditions as PBC in its discretion may determine (subject to the provisions of subsection G of this Section Three), provided that the proceeds therefrom shall without exception be applied to the costs of the Project Expansion and the Original Project as more specifically described in Subsection I of this Section Three.

D.        Each recipient of a portion of PBC’s Water Entitlement sold separately from PBC’s land pursuant to Subsection C shall be entitled to issuance by the General Manager of a Water Use Permit for such amount of the Water Entitlement as is documented in the conveyance documentation presented to the General Manager, with a commensurate reduction (as documented in a Water Use Permit) in the aggregate amounts of the Water Entitlement thereafter held by PBC.

E.         All proceeds received by PBC from any separate sale or conveyance of a portion of PBC’s Water Entitlement as described in Subsection C shall be deposited in an escrow account (the “Escrow Account”) to pay for, in the first instance, Capital Costs of the Project Expansion, which Escrow Account shall specify and require that the funds shall be released and used only for the purposes specified in Subsection I below.

F.         The Water Entitlement of PBC shall be separately sold and conveyed, and Water Use Permits issued, pursuant to Subsections C and D, only for residential use in Del Monte Forest (as defined in Exhibit B) on property not owned by PBC as of the time that this ordinance is adopted.  This restriction of use shall be set forth on the face of the Water Use Permit, and notice thereof shall be recorded in the form of a deed restriction against the property to which the conveyed water entitlement is dedicated.

Nothing in the preceding two sentences shall affect the right and ability of PBC to use and apply such quantity of PBC’s Water Entitlement to Benefited Properties owned by PBC, as has not been sold and conveyed by PBC pursuant to Subsection C of this Section Three.  Specifically, PBC shall have the right and ability, notwithstanding this ordinance, to commence or to continue to apply and utilize its Water Entitlement on any or all Benefited Properties owned by PBC as provided in the Fiscal Sponsorship Agreement for any lawful use, and may sell and convey a parcel of land that it owns together with a portion of its Water Entitlement without being required to pay any consideration received therefor into the Escrow Account.

G.        Prior to completion and operation of the Project Expansion, the Water Use Permits evidencing the first 150 acre feet (or such additional amount, if any, as may be agreed to by MPWMD) of the Water Entitlement sold and conveyed by PBC pursuant to Subsections C and D of this Section Three to owners of residential property within the Del Monte Forest (as defined in Exhibit B) for use solely on said property shall not be subject to revocation or termination, whereas all Water Use Permits for amounts of the Water Entitlement in excess of such amount shall be subject to revocation or termination pursuant to the provisions of this ordinance.  After completion and operation of the Project, all Water Use Permits issued to evidence the separate sale and conveyance of the Water Entitlement pursuant to Subsections C and D of this Section Three shall not be subject to revocation with respect to the entire Water Entitlement so transferred; provided, however, in each case, that such water use rights shall be subject to modification after year 2075 as provided in this ordinance and in Ordinance No. 39. 

H.        Pursuant to an agreement to be entered into between MPWMD and PBC, MPWMD with the concurrence of PBC shall determine when the funds in the Escrow Account (and the expected funds to be received from the sales described in Subsection C of this Section Three) suffice to begin construction of the Project Expansion.  The parties estimate at the present time that $15 million will be required to cover the Capital Costs of, and to begin construction of, the Project Expansion.

I.          Any proceeds received by PBC from the separate sale and conveyance of portions of its Water Entitlement pursuant to Subsection C of this Section Three shall be devoted and applied to first, the Capital Costs of the Project Expansion, and next, to the Capital Costs, Net Operating Deficiencies, and Ancillary Project Costs of the Original Project and Project Expansion.

Section Four:  Amendment of Rule 23.5

Monterey Peninsula Water Management District Rule 23.5 shall be amended by adding the portion set forth in italicized typeface and by deleting all text shown in strikeout typeface.  In all other respects, the text of Monterey Peninsula Water Management District Rule 23.5 shall remain unchanged and shall be republished by this ordinance.

Rule 23.5        PERMITS FOR WATER FROM THE CAL-AM WATER  DISTRIBUTION SYSTEM DEDICATED FOR USE IN CONNECTION WITH THE PLAN TO FINANCE THE WASTEWATER RECLAMATION RECYCLED WATER PROJECT

A.        ISSUANCE OF WATER USE PERMITS.  Upon The Board having selectedion of all the Fiscal Sponsor/Sponsors pursuant to Part II of Ordinance No. 39 and based upon the irrevocable commitment by those sSponsors to underwrite, be responsible for, assure and guarantee payment of the Financial Commitment (Capital Costs and Net Operating Deficiencies and Ancillary Project Costs of the Reclamation Original Project recorded by the agreements required by Part VII of this Ordinance No. 39), MPWMD has granted the Water Entitlement and the General Manager shall has issued Water Use Permits to the Fiscal Sponsor/Sponsors PBC, Lohr, and Griffin authorizing the expansion and extension of the Cal-Am water distribution system to provide water service and connections for the benefit of the properties identified in the application(s) of the Fiscal Sponsor/Sponsors Resolution and the Fiscal Sponsorship Agreement (such properties hereinafter being called the “Benefitted Properties” described in the respective Exhibits “A” theretounder as amended).  By virtue of the Water Entitlement, eEach Water Use Permit shall has granted an irrevocable present vested property interest upon one or more Benefited Parcels Properties for the use and benefit of a specified quantity of potable water per year (in acre feet) produced by the Cal-Am water distribution system owned and operated by the California-American Water Company (“Cal-Am”).

Water Use Permits shall be subject only to the following limitations: (1) Tthe permit shall not limit the power of the Monterey Peninsula Water Management District (“MPWMD”) to curtail water use in the event of any water emergency caused by drought, or other threatened or existing water shortage, as defined in Section 332 of the Monterey Peninsula Water Management Act, including without limitation the power of MPWMD to impose termination of water service as a consequence of a violation of water use restrictions; (2) Tthe permit shall not relieve or reduce any obligation of the recipient of water to pay customary fees, connection charges, user fees, surcharges, taxes, utility taxes, and/or any other customary monetary obligation which may be imposed by the California Public Utilities Commission, Cal-Am, MPWMD District, or other Public Participants upon water users of the same class within the California-American Water Company service area, including but not limited to fees and charges due and payable to MPWMD by reason of Rule 24 of MPWMD’s Rules and Regulation, nor shall such permit limit the authority of Cal-Am or MPWMD to terminate for such non-payment; (3) Tthe permit shall enable present use of the Water Entitlement by PBC only upon the commencement of operation of the Reclamation Project and upon the continuing financial assurance or guarantee by the Fiscal Sponsor/Sponsor(s) relating to the payment of Net Operating Deficiencies for the Reclamation Project; and (4) Nnotwithstanding any other provision of this Ordinance: (a) the Water Entitlement allocated to the Benefited Properties as a whole shall not exceed 380 AF, (b) the water usage on any Benefited Property shall not exceed the aggregate amount of the Water Entitlement allocated to such Benefited Property, (c) water usage of the Benefited Properties shall be calculated by MPWMD in a manner that reasonably reflects actual annual average water usage among the Benefited Properties and does not discriminate against the Benefited Properties in relation to other similarly situated water users within MPWMD.

Further, notwithstanding any other provision of this Rule Ordinance, once a new water connection is established through use of all or a portion of a Water Entitlement, to the extent of such usage the water user shall be treated in a manner equal to any other Cal Am water user and shall not be entitled to preferential access to water over any other water user of the Cal Am water distribution system.

The revocation and termination of any Water Use Permit shall not diminish or otherwise adversely affect present actual use of water by reason of a prior expansion or extension of the Cal-Am water distribution system through any connection previously made pursuant to such Water Use Permit, except that actual use of water may be reduced subject to the preceding two subparagraphs . Permits issued pursuant to this Rule shall represent a vested property interest upon issuance and shall not be subject to revocation or cancellation except as expressly set forth in subparagraph (D) below, except that actual use of water may be terminated as described in the preceding two subparagraphs. The Water Entitlement granted by each Water Use Permit shall not be subject to reallocation pursuant to District MPWMD Rule 30, nor shall it be terminated or diminished by reason of any water emergency, water moratorium or other curtailment on the setting of meters for the California-American Wwater Ssystem, nor shall it otherwise be subject to diminishment or revocation, except as described in the preceding two subparagraphs or in the event that a Water Use Permit is revoked or cancelled as provided by subparagraph (D) below.

B.        WATER USE PERMIT PROVISIONS. Each Water Use Permit shall be issued by the General Manager with respect to a single Benefitted Property and shall identify, with respect to the Benefited Property:

(1) the nature (industrial/commercial/residential, unless both the Property and the water dedicated thereto may be put to industrial or commercial use) and location of the water use to be applied to each Benefitted Property, and the consistency of such water use with existing land use and zoning plans;

(2) the number and nature of connections projected for each Benefitted Property; and

(3) the projected water use required by each connection proposed upon the Benefitted Property.

C.        AMENDMENT OF WATER USE PERMITS. The Each Fiscal Sponsor Oowner of any Benefitted Property, shall, upon request, be entitled to an amendment to any Water Use Permit to reduce, or increase, or change the number and type of connections and water use with respect to any Benefitted Property owned by such Fiscal Spponsor Oowner, provided that in no event shall the aggregate amount of estimated annual water usage for the Benefitted Properties owned by that Owner of that Fiscal Sponsor/Sponsors exceed the aggregate Water Entitlement allocated to the Benefitted Properties of that Fiscal Sponsor Oowner, and provided further that the reallocation of connections shall be allowed only among those locations identified in Exhibit A hereto the Fiscal Sponsor’s application.  Water Use Permits may be separately sold and conveyed transferred and assigned only by PBC, and then only to successors-in-interest to the Owners of the Benefitted Properties as defined in this ordinance; provided, however that such Owners who have received a Water Use Permit by sale and conveyance from PBC pursuant to Subsections C and D of Ordinance No. 109 shall be entitled to use the Water Entitlement evidenced therein only on the Benefited Property to which it applies and shall not have the right to further sell or convey the Water Use Permit for any use other than residential use or on any other Benefited Property.

D.        REVOCATION, AND TERMINATION, OR MODIFICATION OF WATER USE PERMITS.

Each Water Use Permit held by PBC shall provide that it shall be revoked and terminated in the event that PBC or any other subsequent Fiscal Sponsor shall default in any material manner upon its obligation, assurance, and guarantee of the Financial Commitment for the Reclamation Project, provided that nothing herein shall preclude PBC or any other subsequent Fiscal Sponsor from disputing in good faith any claim of default made by the Water Management District MPWMD nor shall the Water Management District MPWMD terminate or revoke any Water Use Permit unless the PBC or any subsequent Fiscal Sponsor shall have been given notice and a reasonable opportunity to cure any such default so long as such opportunity to cure shall not result in any payment default to the any bondholders of the Certificates of Participation.

Prior to completion and operation of the Project Expansion, the Water Use Permits evidencing the first 150 acre feet of the Water Entitlement sold and conveyed by PBC pursuant to Subsections C and D of this Section Three to owners of residential property within the Del Monte Forest (as defined in Exhibit B) for use solely on said property shall not be subject to revocation or termination, whereas all Water Use Permits for amounts of the Water Entitlement in excess of such amount shall be subject to revocation or termination pursuant to the provisions of this ordinance.  All Water Use Permits issued after completion and operation of the Project to evidence the separate sale and conveyance of the Water Entitlement pursuant to Subsections C and D of this Section Three shall not be subject to revocation with respect to the entire Water Entitlement so transferred except as set forth in the following sentence.

In addition, notwithstanding any other provision of this Ordinance Nos. 39 or 109, each Water Use Permit which on or after January 1, 2075, embodies an annual Water Entitlement in excess of requirements for planned land uses on a Benefitted Property or which purports to authorize usage in excess of the constitutional limitation to reasonable and beneficial use shall be subject to modification, revocation, or and termination in the sole discretion of the District MPWMD, such that the water usage authorized thereby shall not exceed such requirements and limitations.

Prior to any termination and revocation or modification, termination, or revocation pursuant to this subparagraph D, the holder of the Water Use Permit, and during the duration of the Financial Commitment, PBC or any subsequent Fiscal Sponsor, shall be entitled to notice and a hearing, and any termination, revocation, or modification shall be subject to appeal to the Board pursuant to Rule 70 of the District MPWMD Rules and Regulations.

The revocation, and termination or modification of any Water Use Permit shall not diminish or otherwise adversely affect present actual use of water by reason of prior expansion or extension of the Cal-Am water distribution system through any connection previously made pursuant to such Water Use Permit, provided that each Water Use Permit holder shall be subject to such laws, ordinances, and regulations as are generally applicable to persons actually using water from the Cal-Am water distribution system, and nothing herein is intended to or shall affect the ability to curtail or eliminate the actual use of water through any connection previously made pursuant to a Water Use Permit to the extent such curtailment or elimination is authorized by such other laws, ordinances, or regulations. 

E.         CAL-AM SYSTEM EXPANSION/EXTENSION PURSUANT TO WATER USE PERMITS.

            So long as the Reclamation Project has commenced operation so long as all assurances or guarantees required for both payment of Capital Costs and payment of Net Operating Deficiencies for the Reclamation Project continue to be met (or expire by their terms), Eeach Water Use Permit shall entitle the owner of a Benefitted Property to potable water service to be provided by the Cal-Am water distribution system for such Benefitted Properties, including the installation of water meters and mains as necessary, upon payment of the fees required by subparagraph E.2. and presentation to MPWMD by the Fiscal Sponsor Owner of the applicable Benefited Property for which the following information has not previously been provided:

(1.)   (a)   A statement by the Fiscal Sponsor Owner setting forth the annual capacity of water use that the Fiscal Sponsor Owner intends to use through such expansion/extension of the Cal-Am water distribution system, and the nature of the uses to which such water is intended to be applied; and

         (b)   a valid municipal or county building permit which will allow construction upon the Benefitted Property; or

         (c)   a complete set of architectural contract drawings; or

         (d)   other documentation sufficient for MPWMD the District to determine quantity and the capacity for annual water use of the Benefitted Property and the number and type of each requested connection.

(2.)   The payment of any customary fees and connection charges required by both Cal-Am and the District MPWMD of water users within the Cal-Am service area, calculated upon the basis of the estimated annual water usage capacity for the Benefitted Property set forth in the Fiscal Sponsor’s statement, including but not limited to fees and charges due by reason of Rule 24 of the District’s MPWMD’s Rules and Regulations.

Upon the filing of the information and payment of the fees required above, the General Manager shall make a notation on the Water Use Permit indicating the location, capacity and nature of each connection requiring a present expansion/extension of the Cal-Am water distribution system. Estimated usage shall be based upon the water use capacity for proposed or planned development upon Benefitted Properties. The aggregate water use represented by such expansions/extensions of the Cal-Am water distribution system, shall not exceed the Water Entitlement evidenced by such Water Use Permit. In the event that an Owner of any Benefited Property Fiscal Sponsor requests an expansion/extension of the Cal-Am water distribution system with respect to less than all of the Water Entitlement evidenced by such Water Use Permit, the General Manager shall make a notation on such Water Use Permit indicating the remaining Water Entitlement.

The Owner of any Benefited Property to which the Owner has previously applied a portion of the Water Entitlement through prior expansions/extensions of the Cal-Am water distribution system Fiscal Sponsor shall be entitled to increase the annual water use for any on such Benefited Property to which the Fiscal Sponsor has previously applied a portion of the Water Entitlement through prior expansions/extensions of the Cal-Am water distribution system upon presentation of the information and payment of the fees set forth in this subparagraph (E), provided that such increase does not cause the aggregate any such increases in water use for on the Benefitted Property (or Properties, as applicable) to shall not exceed in the aggregate the aggregate total Water Entitlement of all Benefitted Properties owned by such Owner, or the total Water Entitlement of the Benefited Properties as a whole. 

Cal-Am shall be authorized to execute a contract with the Fiscal Sponsor to enable the provision of water service pursuant to subsections C and D of Section Three of Ordinance No. 109 consistent with the Water Entitlement evidenced by the Water Use Permit issued under this provision.  Such agreement with Cal-Am shall at the Fiscal Sponsor’s option be a condition precedent to the providing of financing pursuant to Section Three of Ordinance No. 109 Fiscal Commitment by the Fiscal Sponsor that is to pay for the Capital Costs of the Project Expansion. The actions required to be taken by the General Manager pursuant to this paragraph shall be ministerial, non-discretionary acts which shall not be affected by any water moratorium, water emergency, allocation decision or other curtailment on the setting of new water meters for the Cal-Am water distribution system and shall be enforceable by mandamus, provided that nothing in the foregoing is intended to or shall affect the ability of MPWMD to curtail or eliminate the actual use of water through any connection previously made pursuant to a Water Use Permit to the extent such curtailment or elimination is authorized by such other laws, ordinances, or regulations, nor is it intended to provide or imply that any Water Use Permit holder shall not be subject to such laws, ordinances, and regulations as are generally applicable to persons actually using water from the Cal-Am water distribution system.

F.         DEFINITIONS. 

For the purpose of this Ordinance No. 109 and Rule 23.5, the following words shall have the meanings set forth below. Other words which are defined in Rule 11 to the Rules and Regulations, when used in Rule 23.5 or thise ordinance shall have the meanings set forth therein, unless the context otherwise indicates.

“Ancillary Project Costs” means net revenues (gross revenues less allocable operation and maintenance costs and administrative and general costs as such terms are defined in accord with generally accepted utility practices) which Cal-Am shall not receive by reason of operation of the Reclamation Project. Ancillary Costs shall not include any return on assets of Cal-Am which have been removed from the water distribution system rate base by reason of the Reclamation Project. Ancillary Costs shall be reduced over time by net revenues received by Cal-Am by reason of sales of Cal-Am water (with respect to the bBenefited pProperties) following the first date of Reclamation Project operation.

“Benefitted Properties” means those properties described on Exhibit “A” hereto within the Cal-Am service area which have been identified within the application of the selected Fiscal Sponsor/Sponsors and upon which a portion of the Water Entitlement may be utilized.  For any public agency Fiscal Sponsor, the term “Benefitted Properties” shall be defined as those properties owned entirely by the public agency and dedicated for public use.  All Benefited Properties are located in the Del Monte Forest (the area shown on Exhibit “B”) except as otherwise noted in Exhibit “A.”

“Cal-Am”  means the California American Water Company, a California corporation, its successors and assigns.

“Capital Costs” as applied to the Reclamation Project or any portion thereof means all or any part of:

(a) the cost of acquisition of all lands, structures, real or personal property rights, rights-of-way, franchises, easements, and interests acquired or used for, the Reclamation Project, inclusive of fees and commissions for acquisition;

(b) the cost of construction related to of the Reclamation Project, including but not without limitedation, to demolition, repair, modification, replacement or renovation of existing structures, facilities, fixtures or equipment essential to the construction and operation of the Project; cost of improvements and materials; direct and indirect Public Participation construction and administration expenses properly allocable to the Reclamation Project in accordance with generally accepted accounting principles; costs of painting, decorating, furnishing and landscaping; contractor and subcontractor profit; and costs related, by reason of the Reclamation Project, to plumbing, mains, tanks, or pipes which are modified, repaired, replaced, or renovated, whether owned by Public Participants or others.

(c) the cost of demolishing or removing any buildings, fixtures, equipment, or structures on land so acquired, including, without limitation, the cost of acquiring any lands to which such buildings or structures may be moved;

(d) the cost of all new machinery, piping, equipment and furnishings, including but not limited to the cost lesser of (i) the fair market value, or (ii) depreciated value for purposes of the applicable rate base, of machinery, piping, equipment and furnishings made obsolete or unusable to Cal-Am, or any of the Public Participants, or others by reason of the Reclamation Project to the extent not replaced by the Project;

(e) costs of selling and issuing the Certificates of Participation, including, without limitation, the underwriter’s discount and any other applicable fFinancing charges;

(f) Interest on any funds advanced to permit payment of any of the Capital Costs prior to, during, and for a period after completion of the acquisition and construction of the Reclamation Project as determined by the Monterey Peninsula Water Management District, including, without limitation, capitalized interest on the Certificates of Participation;

(g) provisions for working capital;

(h) the Operating Reserve and other similar reserves for routine or extraordinary repairs and replacements necessary to the Reclamation Project;

(i) the cost of architectural, engineering, planning, environmental analysis, financial, accounting, auditing and legal services, plans, specifications, estimates, administrative expenses, permits, fees, adverse claims, personnel and overhead costs (both direct and indirect, to the extent properly allocable to the Reclamation Project in accordance with generally accepted accounting principles), and other expenses necessary or incident to determining the feasibility of construction the Reclamation Project or incident to the planning, construction, acquisition, or financing of any portion of theat Project, including, without limitation:

1.         Payment during the construction period of the premiums for all title and other insurance, bonds, or undertakings required to be taken out and maintained with respect to any part of. the Reclamation Project to the extent such amounts are not paid by any contractor who constructs or installs any portion of the Reclamation Project;

2.         Payment of the taxes, assessments and other fees or charges, if any, that may become payable during the construction period with respect to any portion of the Reclamation Project, or reimbursements thereof; and

3.         Payment of expenses incurred in seeking to enforce any remedy against any contractor or subcontractor in respect of any default under a contract relating to the acquisition, construction or installation of any portion of the Reclamation Project.

4.         Payment of expenses incurred concerning asserted deficiencies in the Project and related matters beginning on                           , and continuing through the drafting, negotiation, and execution of any and all agreements necessary or desirable to implement the design, construction, operation, and maintenance of the Project Expansion and any modifications thereof or thereto.

5.         Payment of any expenses incurred to monitor compliance with or to enforce Water Use Permits and to make determinations concerning adjustments to Water Use Permits that may be required in 2075.

“CAWD” means the Carmel Area Wastewater District (formerly known as the Carmel Sanitary District), a public agency.

“CAWD/PBCSD” means the Carmel Area Wastewater District and the Pebble Beach Community Services District, with respect to any rights or obligations that they hold in common, jointly and severally.

“Certificates of Participation” means the Certificates of Participation issued by MPWMD in 1992 in the amount of $33.9 million to finance the Capital Costs of the Original Project.

“Del Monte Forest” means the area of mostly unincorporated Monterey County described and/or depicted on Exhibit “B”

                        “Emergency” means one or more sudden, unexpected occurrences, beyond the reasonable control of the owner or operator of any Recycled Water Irrigation Areas, that interrupt the supply of Recycled Water to the Recycled Water Irrigation Areas, demanding immediate and diligent action by CAWD and/or PBCSD to restore such supply.  Under no circumstances shall an Emergency last longer than the period of time reasonably required to promptly and diligently complete the repair or replacement activities (taking into account cost only where exorbitant).  Notwithstanding the preceding sentence, once the Project Expansion first becomes operational, no such Emergency shall, for purposes of this ordinance, justify the use of potable water for irrigation of the Recycled Water Irrigation Areas for more than days within any                                      consecutive day period.

“Financial Commitment” means the commitment of PBC, as the Fiscal Sponsor, or any subsequent Fiscal Sponsor, to assume and guarantee payment of (1) the Capital Costs of the Reclamation Project (including the payment of the principal of and interest on the Certificates of Participation or any bonds or other obligations issued by any Public Participant to finance such costs), and (2) the Net Operating Deficiencies of the Reclamation Project for the entire period ending twenty years following the estimated completion date of the project until the Certificates of Participation (and any bonds or other obligations issued by any Public Participant to finance such costs) have been paid in full (or for any shorter periods as permitted by the District MPWMD), and (3) payment of all Ancillary Project Costs.

“Fiscal Sponsor or Fiscal Sponsors” means PBC and any person or persons (including partnerships, corporations, municipal corporations, or other public entities) selected to act that may succeed PBC in ownership of all of PBC’s assets and assume, as the Fiscal Sponsor/Spponsors, all of PBC’s obligations pursuant to Part II of Ordinance No. 39, Ordinance No. 109, the Fiscal Sponsorship Agreement, and any amendments thereof, which person or persons shall will be obligated, and liable for, and capable of paying the Capital Costs and Net Operating Deficiencies of the Reclamation Project.

“Fiscal Sponsorship Agreement” means the Wastewater Reclamation Project Fiscal Sponsorship Agreement between the Monterey Peninsula Water Management District and Pebble Beach Company, dated as of October 3, 1989, as amended.

“Franchise Freed-Up Water” means potable water which has been freed for new use by reason of subpotable Recycled Wwater deliveries from the Reclamation Project.  Freed-Up Water has the same meaning as “Franchise Water” in Ordinance No. 39.

“General Manager” means the General Manager of MPWMD. 

“MPWMD” means the Monterey Peninsula Water Management District, a public agency. 

“Net Operating Deficiency” as applied to the Reclamation Project means, for any fiscal year or portion thereof, the difference between the Operating Revenues and the Operation and Maintenance Expenses for such period.

“Operation and Maintenance Expenses” as applied to the Reclamation Project means all expenses and costs of management, operation, maintenance and repair of the Reclamation Project, including payments to be made by the Public Participants under agreements with Cal-Am for the purchase of subpotable Recycled Wwater, debt service payments on the Certificates of Participation and all any other bonds or other obligations issued to finance the cost of the Reclamation Project, and all incidental costs, fees and expenses properly chargeable to the Reclamation Project in accordance with generally accepted accounting principles, including reasonable depreciation and obsolescence charges or reserves therefore assuming straight line depreciation upon a useful life assumed to be thirty (30) years, amortization of intangibles and other bookkeeping entries of a similar nature. 

“Operating Reserve” means a reserve maintained for the purpose of paying for operations, providing working capital, and paying for routine and extraordinary repairs and replacements.

“Operating Revenues” as applied to the Reclamation Project means all income, rents, rates, fees, charges and other moneys derived by the Public Participants from the ownership or operation of the Reclamation Project, including, without limiting the generality of the foregoing: (i) all income, rents, rates, fees, charges or other moneys derived from the sale, furnishing and supplying of the reclaimed, subpotable Recycled wWater (or from potable water supplied in lieu thereof (but only to the extent the use of potable water is permitted hereunder); (ii) Interest earnings on all revenues mentioned in (i) above, and on the Operating Rreserve or on any other fund or account relating to the Reclamation Project, and (iii) insurance and condemnation proceeds resulting from damage to or destruction of the Reclamation Project facilities, or from the condemnation of the Reclamation Project; provided, that the term “Operating Revenues” shall not include customers’ deposits or any other deposits subject to refund until such deposits have become the property of one of the Public Participants.

 “Original Project” means and consists of (1) a tertiary treatment facility at the present CAWD wastewater treatment plant site, designed to produce at least 800 acre feet per year of disinfected recycled water, (2) a distribution system which is capable of distributing the recycled water from the facility to a point of distribution in the Del Monte Forest for further distribution to the Recycled Water Irrigation Areas, and (3) recycled water irrigation systems on each of the Recycled Water Irrigation Areas.

“Owner” means the holder (of record) of fee title to any Benefited Property.

“PBCSD” means the Pebble Beach Community Services District, a public agency.

“Project” or “Reclamation Project” means the CSD/PBCSD wastewater treatment plant (including lands, facilities, equipment, furniture and fixtures) Original Project (used since 1995 to create, distribute, and store Recycled Water) and the Project Expansion.

“Project Expansion” means and consists of the addition of advanced treatment components to the tertiary treatment plant facilities of the Original Project to produce “Recycled Water,” and the addition of storage, treatment, and distribution facilities at the Forest Lake Reservoir located within the Del Monte Forest and owned by PBCSD.

 “Public Participant” means any one or more of the following: the Monterey Peninsula Water Management District, the Carmel Area Wastewater District, formerly the Carmel Sanitary District, the Pebble Beach Community Services District, or any successor public agency including but not limited to any joint powers agency formed by one or more of the above agencies.

Before the Project Expansion becomes operational, “Recycled Water” shall mean water originating from the tertiary treatment facilities of the CAWD wastewater treatment plant.  Once the Project Expansion first becomes operational, “Recycled Water” shall refer to water originating from said tertiary treatment facilities and thereafter receiving further treatment so as to be suitable for irrigation of all portions of the Recycled Water Irrigation Areas without the addition of any potable water thereto (except during an Emergency as defined herein) and otherwise meeting all regulatory and health standards for such usage.  “Recycled Water” has the same meaning as “Reclaimed Water.”

“Recycled Water Irrigation Areas” means the golf courses and other vegetated areas located within the Del Monte Forest that now or in the future may be irrigated with Recycled Water supplied by the Project. 

“Water Entitlement” means an aggregate of 400 380 acre feet per year (or less) of potable water, and in no event more than fifty (50%) percent of the total amount of Franchise Water, which shall be the maximum portion of the Franchise Water has been dedicated (as evidenced by Water Use Permits issued pursuant to Ordinance No. 39, the Resolution, and the Fiscal Sponsorship Agreement) or which may be dedicated to land within the jurisdiction of the District MPWMD for the purpose of providing for the payment of the Capital Cost, Ancillary Project Cost, and Net Operating Deficiencies of the Reclamation Project.  Ordinance No. 109 provides a process by which a portion of the Water Entitlement held by PBC may be separately sold and conveyed and thereby be dedicated to other land within the jurisdiction of MPWMD with the proceeds therefrom to be applied exclusively to the costs of the Project Expansion and the Original Project as more specifically described therein.

“Water Use Permit” means a writing from the District MPWMD which evidences the irrevocable dedication of the Water Entitlement as a present vested property right enuring to the use and benefit of one or more of the Benefitted Parcels Properties.  A Water Use Permit shall by non-discretionary ministerial action, cause the present Expansion/Extension of the Cal-Am water distribution for Benefitted Properties upon designation of the location of use, and upon payment of applicable connection fees and charges.  A Water Use Permit shall take the place of and be used instead of any Expansion/Extension Permit upon any Benefitted Parcel Property as relates to the use of any portion of the Water Entitlement.

Added by Ordinance No. 39 (2/13/89); amended by Ordinance No. 71 (12/20/93)

            Section Five:  Agreements to Provide for Water Entitlement

The General Manager is authorized to negotiate and, subject to the prior approval or ratification by the Board, to execute such further agreements with Cal-Am and PBC as are necessary or desirable to provide the terms and conditions upon which the Water Entitlement will be provided to, and used on, the Benefited Properties in the manner provided in this ordinance.  MPWMD will cooperate with PBC and Cal-Am in securing any approval required from the California Public Utilities Commission that may be necessary or desirable in connection with such agreements.

MPWMD shall acknowledge in any such agreement that the Fiscal Sponsor (currently PBC) has made and has stated its intention to continue to provide the Financial Commitment in reliance upon the provisions of Ordinance No. 39 and this ordinance, as such Financial Commitment is respectively defined therein.  MPWMD shall agree not to amend the provisions of this ordinance in any manner which would impair the interest of such Fiscal Sponsor or any successor or assign.

Section 6:  Agreements to Guarantee the Payment of Project Capital Costs and Net Operating Deficiencies

The General Manager is authorized to negotiate and, subject to the prior approval or ratification by the Board, to execute such further agreements with PBC and Cal-Am as are necessary or desirable to assure and guarantee, the full payment of the Capital Costs and Net Operating Deficiencies and Ancillary Project Costs of the Project (including the Project Expansion) with minimal fiscal risk to MPWMD or any other Public Participant; provided that the failure to enter into such a further agreement with PBC and/or Cal-Am with respect to undertaking the Project Expansion shall in no way diminish or affect PBC’s or any Owner’s rights or obligations under Ordinance No. 39, any Water Use Permit issued thereunder, or any agreement entered into pursuant thereto that is not subsequently superseded.  Such further agreements shall not require the Fiscal Sponsor to incur any cost or liability for changes which expand the scope of the Project (defined to include the Project Expansion). Furthermore, the agreement shall provide reasonable controls over expenditures and accounting of expenditures.

Section Seven: Agreements with Public Participants

The General Manager is authorized to negotiate and, subject to the prior approval or ratification by the Board, to execute such agreements as are necessary or desirable to provide for the construction, equipping and operation of the Project Expansion by CAWD and/or PBCSD in conjunction with the continuing operation and maintenance of the Original Project by CAWD and/or PBCSD.   All financial commitments for the construction, ownership, and operation of the Project Expansion shall be payable first from Operating Revenues of the facility including any reserves therefor, then from the funds provided by PBC from the proceeds of the separate sale and conveyance of PBC’s Water Entitlement and Water Use Permits to other Owners of the Benefited Properties as provided in Section Three of this ordinance, and lastly from any other funds lawfully available to MPWMD or any other Public Participant. 

All financial commitments of MPWMD and/or PBC under the Fiscal Sponsorship Agreement for the continuing operation and maintenance of the Original Project by CAWD and/or PBCSD shall be unaffected by this ordinance.  In the event that PBC requests, or the Public Participants otherwise determine that it is appropriate, to issue refunding bonds or other obligations in order to refinance the Capital Cost of the Reclamation Project, MPWMD shall cooperate with such Public Participants in providing for the issuance of such obligations.

Section Eight:  Purchase of Recycled Water from the Reclamation Project

The General Manager is authorized to negotiate and, subject to the prior approval or ratification by the Board, to execute agreements with the owners of such Recycled Water Irrigation Areas as may from time to time be located within the Del Monte Forest (as defined in Exhibit B), and within the Cal-Am service area (collectively called the “Recycled Water users”) for the purchase and sale of Recycled Water from the Project.  All agreements shall: (1) require the Recycled Water users to purchase such Recycled Water for a term not less than twenty (20) years; (2) provide for a guarantee by CAWD and/or PBCSD, as the Project operators of the Project Expansion, of the delivery of Recycled Water from the Project to such Recycled Water users to meet all of their irrigation requirements except during an Emergency as defined herein; (3) prohibit such Recycled Water users, after completion of the Project Expansion, from using any potable water from Cal-Am to irrigate any portion of the Recycled Water Irrigation Areas except during an Emergency as defined herein, provided, however, that the use of potable water during any such Emergency shall be further limited as may be required by the Board in response to water shortage emergency declared by the Board pursuant to Section 332 of the Monterey Peninsula Water Management District Law throughout the duration of such water shortage emergency; and (4) after the expiration of the Financial Commitment of the Fiscal Sponsor, require MPWMD to impose rates and charges for Recycled Water sufficient to maximize payment for Operation and Maintenance Expenses and Capital Costs of the Reclamation Project, subject to the limitation set forth in Water Code section 13550 that the price for Recycled Water shall be comparable to the cost of supplying potable domestic water except as the parties to the Related Agreements may agree in writing otherwise.

The General Manager shall establish a billing and collection procedure to ensure the timely collection of revenues under these agreements.

Section Nine: Severability

If any subdivision, paragraph, sentence, clause or phrase of this ordinance is, for any reason, held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability, shall not affect the validity or enforcement of the remaining portions of this ordinance, or of any other provisions of the Monterey Peninsula Water Management District Rules and Regulations. It is MPWMD’s express intent that each remaining portion would have been adopted irrespective of the fact that one or more subdivisions, paragraphs, sentences, clauses, or phrases be declared invalid or unenforceable.

On motion by Director ________________________, and second by Director _____________________, the foregoing ordinance is adopted upon this _____ day of _______________, 2003, by the following vote:

AYES:

NAYS:

ABSENT:

I, Fran Farina, Secretary to the Board of Directors of the Monterey Peninsula Water Managemnet District, hereby certify the foregoing is a full, true and correct copy of an ordinance duly adopted on the _______ day of ________________, 2003.

Witness my hand and seal of the Board of Directors this ____ day of ________________, 2003.

_____________________________________

Fran Farina, Secretary to the Board

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