TAC Memorandum 11-14-12 w Attachments

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MEMORANDUM

TO: MPRWA Board of DirectorsFROM: Technical Advisory CommitteeDATE: November 14, 2012SUBJECT: SPI Draft Report Evaluation of Seawater Desalination Projects

Introduction

The Authority received a draft report from Separation Processes Inc and Kris Helm Consulting onNovember 6, 2012. At its November 13 th meeting the Authoritys Technical Advisory Committeediscussed the report and held public comment, in order to identify key issues, variables, clarifications,and questions that might help the Authority board formulate a plan for completion of a final report andto identify next steps

Recommendation

The Authority Board should

(A) Identify any significant issues or deal stoppers with respect to the draft report, that must beaddressed;

(B) Determine if there are a handful of key assumptions for which sensitivity scenarios should beanalyzed. For example, for a given assumption, if that assumption does not hold true what isthe effect on cost and timeline;

(C) Suggest what the most useful improvements are that could be made to the report. Forexample, clarification of underlying assumptions.

(D) Coordinate with SPI on what the process going forward should be in order to receive a finalreport. and

(E) Raise any specific clarifications or questions an individual board member may wish to add to thedetailed information which follows in the Background section of this memorandum,

Background

Below is a summary of specific issues/questions raised at the November 13, 2012 TAC meeting.

DeepWater Desal

On behalf of DWD, David Armanasco raised four areas of clarification and discussion with respect to thedraft report: (i) Source Water Supply and Quality, (ii) O& M Cost, (iii) Schedule, and (iv) Project Risk.Please see the attached DeepWater memorandum.


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Peoples Moss Landing

Paul Hart, the PML attorney raised seven areas of inquiry: (i) would like to see the capital recovery forCal-Am in Table 5-2 reflect a higher cost of capital, such as 11%; (ii) believes there are advantages toownership in that future lease costs after the thirtieth year should be reflected in overall cost of projectswhich assume leases, in that ownership costs are fully amortized over thirty years; (iii) If Cal-Am needsto assert eminent domain to gain site control, what will be the impact on cost?; (iv) Did not feel DWDthird part intake costs were adequately reflected (but was directed to re-read the paragraph followingTable 5-6); (v) Wants to be sure the additional capital and operating costs related to extraction,treatment, and return of Salinas Valley groundwater are fully included in the costs of potable waterdelivered; (vi) Would like clearer explanation for the difference in timelines why is the PML scheduleextended for a detailed project description, but not the other projects?; (vii) If DWD is a large regionalproject, with large upfront fixed costs, and the DWD analysis assigns only a percentage of those costs,who is paying for the rest and what are the risks that such costs are ultimately passed onto thePeninsula customers?

Nader Agha expressed concern that SPI used data from PMLs July submittal, but should have used the

updated October 2012 submittal . He also expressed disagreement with the reports schedule andbelieves the environmental document PML has produced, which he referred to as a focused EIR,would expedite the schedule. He disagreed with the cost numbers developed by SPI as inconsistent withthe estimates PML has already made.

Members of the TAC

George Riley asked several questions: (i) Where is each project in terms of site control and does itintroduce more variability than reflected in the report? (ii) Will an EIS (federal review) be required of Cal-Am and what effect would it have on the Cal-Am schedule? (iii) The proprietary intake is an unknown

when will more information become available and what impact will it have on the analysis? (iv) Is the

additional capital and operating costs related to extraction, treatment, and return of Salinas Valleygroundwater are fully included in the costs of potable water delivered? (v) it appears there are severalitems in the Cal-Am schedule being performed simultaneously can more tasks be done in parallel toshorten the other projects schedules? (vi) Whether the periodic replacement of the slant wells wasfactored into the cost analysis for Cal-Am's proposed project? and (vii) What is the state of ownership atthe end of the 30 year analysis period (terminal year) and can that be factored into the analysis? (sincepresumably all of the plants operate for longer than 30 years.)

John Narigi inquired about the following: (i) Slant wells appear to be a large cost component is it worthit relative to the use of Ranney wells? (ii) What would be the difference in cost? (iii) Where is eachproject in the schedule right now? (iv) Is the operating assumption of running the Cal-Am facility at 98%capacity realistic or sensible should capacity be larger? (v) What is the schedule for slant well testingand Coastal Commission approval, and does the Cal-Am schedule adequately reflect it? (vi) What impactwill the groundwater replenishment CEQA delay have on the overall Cal-Am CPUC application andschedule? Mr. Narigi, in a follow-up email added the following (i) What would the two Moss Landingprojects charge Cal-Am as the wholesale cost of water how is that to be determined? (ii) What are thecost and schedule issues, if PML infrastructure is determined to be in worse condition than described?


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Rick Riedel made three observations: (i) the water quality of each proposed project appears to vary, asdescribed in chapter 4 is there a common standard, and does the financial analysis bring them to thecommon standard? (ii) We should be reminded that the fatal flaw sections are technical in nature, notlegal and/or political, which do pose significant risk; and (iii) Does the analysis adequately addresswhether sufficient dispersion of brine discharge can be achieved, and if not, what is the incremental costto do so?

Mayor Burnett asked DWD and PML appear to underproduce in the 5,500 AFY scenario as shown, forexample, on page 4-5? Mayor Burnett has also suggested that it would useful to identify the keyvariables that affect cost and schedule and request SPI do a sensitivity analysis on those. For example,they already have done sensitivity analysis on the cost of electricity at least for Cal-Am's project.Another example might determine how sensitive the cost effectiveness of DWD is to the assumptionthat they will be able to build a 25,000 AFY plant. If that does not come to pass and the capital costs of pipes, etc will need to be spread across a smaller volume of water, how much more expensive is thatwater per acre foot? See page 5-7 and 5-8. What happens to PML and DWD if MLPP is shut down oronce-through cooling ceases? For PML, how do costs change if existing intake system is unusable?

Other questions raised by Mayor Burnett: How should we evaluate schedule risk versus cost of water?How much will it cost our communities to have a project delayed by 6 months? What can be learnedabout schedule risk (especially for open ocean intake) from the Poseidon experience? (via email)

Keith Israel pointed out that the cost comparisons were -30% to +50% estimates, a range much widerthan the differential in cost between the projects. Hence, costs are not absolutes but ranges, and all theprojects are within a reasonable range of each other.

Members of the Public

Doug Wilhelm questioned the use of Surcharge 2 for funding a portion of the Cal-Am project, suggesting

that it should be made available to the public projects or removed from the Cal-Am analysis especiallysince the CPUC may not allow it in whole or in part.

Dale Hekhuis also questions the use of Surcharge 2. He inquired as to whether SPI has reviewed Cal-Ams recent contingency filings to the CPUC and determined what the cost impacts of those would be.Mr. Hekhuis also submitted a single page letter (attached.)

Sue McCloud submitted a series of twenty questions (attached.)

Safwat Malek questioned why the capital costs for the Cal-Am project are so much lower than Cal- Amspublished estimates in their application and presentations to the community.

Ron Weitzman, via email, raised a series of questions (attached.)


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Issues of SPI Draft Report:

1. Single pass RO system proposed by DWD and PML while CalAm partialdouble or two pass system what are advantages/disadvantages and whatis cost factor for single vs double?

2. If PML cannot use all or part of intake infrastructure what is costdifferential to upgrade (es-7)?

3. Does energy cost use MRWMD power also green aspect if this energygenerated from landfill methane is used.

4. Implementation schedules (es-7). Pls expand for each of 7 points, where iseach project now in the process and what steps are yet to be accomplishedand in what time frame.

5. Saw no mention of legal action impact for any of the projects.6. CalAm project do costs reflect 8 slant wells or 5 and shouldnt budgethave

both costs?7. Would be helpful to have a map with SVGB superimposed over the CalAm

project.8. DWD talks about Phases 1 and 2 yet text seems to talk about

infrastructure being done at the outset if so, will the desal project behelping to pay for the larger(25,000 acre ft.) project which wouldaccommodate North County and others?

9. Both DWD and PML use corrosion inhibitors is this for intake and outflowpipes? As it does not appear in the CalAm costs.

10. Page 3-2 this a small matter but the 46 acre parcel is accessed by aneasement from the Monterey Regional Waste Management District.

11. Fall back for CalA ms slant wells woul d be the Ranney well but no

indication of cost difference and any approvals necessary.12. DWD intake pipe crossing Hiway 1 what is involved in using existing

tunnel and was this taken into time factor for necessary permissions13. DWD refers to proprietary systems of MLPP how will costs be obtained14. Was lack of redundancy for product storage figured in for some suitable

temporary storage?


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15. 3.2.5 When will additional analysis to assess the vertical mixing zone at theinterface of the submarine canyon be completed

16. Cost of construction within the flood plain17. Recommendation for partial second pass RO treatment system cost?18. 3.3.4 several unknowns relative to the outfall costs and time19. What is process/cost of returning groundwater to the Salinas Basin?20. Economics evaluated how and by SPI? Page 5-6 top of page you

independently adjust costs and developed your own estimates hope youshare these systems/systems with someone.

Sue McCloud

11/13/92

624-7310


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Documents

TAC Memorandum 11-14-12 w Attachments