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08-0820_MUNICIPAL WATER DISTRICT OF OC_Agency Participation AgreementFINAL v.8 6-10-08 Agency Participation Agreement for Phase 3 -- Extended Pumping and Pilot Plant Testing Dana Point Ocean Water Desalination Project This agreement (Agreement) between the Municipal Water District of Orange County (MWDOC), South Coast Water District (SCWD), Laguna Beach County Water District, Moulton Niguel Water District, the City of San Clemente (CSC) and the City of San Juan Capistrano (CSJC) (Parties, or individually, Party), establishes a framework for cooperation with regard to the next stage, referred to herein as "Phase 3," in the Dana Point Ocean Water Desalination Project (Project), which consists primarily of work related to extended pumping and pilot plant testing. RECITALS: A. The Parties are water agencies operating within Orange County, California, and all share a responsibility for ensuring a reliable water supply for the area they serve. Each Party, through its forming legislation, has the authority to develop water supply sources and work for the development of such sources (see, for example, Water Code Section 31020 et seq.). Under Government Code Section 6502, the Parties may work cooperatively for the development of a project benefiting a common purpose. B. Each Party has independently identified ocean water desalination as part of its plan to ensure water supply reliability. C. A site owned by SCWD adjacent to San Juan Creep in the City of Dana Point, California (Site) has been identified by MWDOC as an appropriate location for the Project due to its proximity to the Pacific Ocean, and MWDOC and SCWD have entered.. into a Memorandum of Understanding dated April 27, 2006, attached hereto as Attachment A and incorporated herein by this reference, establishing access and other rights to the Site for purposes of continuing a feasibility study. D. MWDOC has pursued development of the Project for several years as a participant in Metropolitan Water District of Southern California's (Metropolitan) Seawater Desalination Program to preserve the option to receive incentive funding of up to $250 per acre foot once the ocean desalination plant begins to produce water. MWDOC has also entered into an agreement with the California Department of Water Resources (DWR) to receive $1.5 million toward the cost of developing a pilot plant as part of the Phase 3 work activities. MWDOC is working to obtain additional state, federal and Metropolitan funding for Phase 3 work activities as well as for construction of the full-scale plant. E: Preliminary feasibility studies for the Project at the Site have been completed, and the Parties now wish to move on to Phase 3 of the investigation, which will involve extended pumping of the slant well previously constructed (Test Slant Well) and development of a Pilot Plant to test treatment processes, as described in Section 1.2 of this Agreement. If the Phase 3 feasibility work is successful in demonstrating that the Project can be implemented in a cost-effective manner, the Parties intend to move forward with implementation of the Project via a formal Joint Powers Agreement in which each implementing party will have a specific agreed-upon Project capacity. The Parties intend that under a Joint Powers Agreement, each agency will pay its proportionate share of FINAL v.8 6-10-08 project capital, operations and maintenance costs, and that contributions for such costs will be based on project capacity ownership, irrespective of whether water was received from the plant or another source. THEREFORE, the Parties agree as follows: 1. Introduction The Parties' purpose in entering into this Agency Participation Agreement for Phase 3 — Extended Pumping and Pilot Plant Testing ("Agreement") is to establish procedures and a framework that will facilitate collective decisions involving cost sharing and other issues related to the activities required for the next stage of the Project, which will consist mainly of extended pumping of the Test Slant Well and pilot plant testing. Extended pumping of the Test Slant Well is necessary to (1) pull in ocean water to test water quality and conduct pilot plant process treatment evaluation studies, (2) determine the effectiveness of the slant well to provide pretreatment, (3) validate the groundwater model for full scale feedwater capacity, (4) determine the impacts on operation of existing groundwater facilities and the lower San Juan Basin as a whole, and (5) update and refine the engineering cost estimate for the Project. MWDOC will provide staff support to facilitate execution of the work, and all Parties will share the cost of the work as provided herein. 1.1 Estimated Phase 3 Costs to be Shared Total cost for this Phase 3 work is estimated at $4,800,000. To date, $1,500,000 in Proposition 50 grant funds have been secured by MWDOC from DWR (DWR Grant). The net cost to the Parties is thus estimated to be approximately $3,300,000, which will be divided among the Parties as provided herein. Efforts to secure funds from other sources will continue by MWDOC with support of the other parties, and additional funding available for the Project could reduce the share of costs owed. 1.2 Phase 3 Work Phase 3 work activities for the Project are anticipated to include, in general terms, the following: • Preparation of the engineering services request for proposals for the Project • Development of a Pilot Plant test plan • Completion of CEQA and NEPA environmental documentation for the test plan • Permitting for the test plan • Negotiation of mitigation fees with State Parks for use of the Doheny State Beach • Design and procurement as needed for the pumping and pilot plant facilities • Installation of the test facilities • Conduct extended pumping test and water duality sampling • Installation and pilot plant process testing • Completion of hydrogeology and groundwater modeling update • Assessment of Project impacts on the lower San Juan Basin • Preparation of draft and final reports • Periodic service and download data from the two monitoring wells 4 FINAL v.8 6-10-08 Begin work on determining the terms and conditions for the following items: (1) obtaining capacity in the San Juan Creek Ocean Outfall and (2) securing a land lease for the Project site from SCWD. This work will include, at a minimum, development of rough. cost estimates for each item and development of a cost proposal and schedule for completing the work on both items. More advanced work on these items will not be initiated until a budget is approved by the governing boards or councils or the PPC, as required. 2 Proiect Participation Committee 2.1 Direction needed on an ongoing basis and related to the progress of the work shall be provided by a "Project Participation Committee" (PPC). The PPC will be comprised of one staff member and one governing board member or city council member from each of the Parties, including MWDOC, as designated by their respective. governing boards or city councils. For purposes of voting on an item within the limited powers of the PPC, as established herein, each Party shall have one vote except MWDOC, which shall be a non-voting member of the PPC. MWDOC may otherwise fully participate in all PPC meetings. 2.2 Decisions related to initial participation in the Agreement and any amendment to the Agreement, including but not limited to amendments to add Parties to the Agreement and amendments related to funding or cost sharing, shall be made by the Parties' governing boards or city councils. In the interest of efficiency and economy, other decisions related to the ongoing implementation of Phase 3 that will not amend the terms of the Agreement shall be subject only to PPC approval by at least a 213 vote of all Parties, 2.3 All Parties except MWDOC shall share in the cost of each item of work approved by the Parties up to the actual total amount expended and shared between the Parties to a total of $3.3 million (the "Agreement Estimated Cost"). Expenditures that would bring the total shared expenditures above the Agreement Estimated Cost shall be subject to review and approval of the governing body of each Party and must be approved as an amendment to this Agreement prior to expenditure. 3 SCWD's Obligations SCWD's obligations include, without limitation, the following: 3.1 SCWD owns the Site and shall in that capacity interface with the State Park at Doheny and other local interests or agencies that have questions or concerns about the Project. 3.2 SCWD will provide funds to pay for its portion of shared costs consistent with this Agreement, as directed by the PPC. 3.3 SCWD is hereby designated as the local agency primarily responsible for the Project. In this capacity, SCWD's PPC Committee member shall preside over meetings of the PPC. 3.4 SCWD shall work closely with MWDOC as needed and will be responsible for providing information about the PPC to the other local agencies. 3.5 SCWD shall cooperate with MWDOC in seeking outside funding for the work activities. 3 FINAL v.8 6-10-08 3.6 In entering contracts on behalf of the PPC, SCWD shall require contractors and consultants to name the individual agency members of the PPG as additional insureds for coverage related to the Project. 4 MWDOC's Obligations MWDOC's obligations include, without limitation, the following: 4.1 Provide staff time to outline and manage the work activities. This includes working with the various consultants authorized by the PPC to complete the Project tasks. 4.2 Serve as the lead agency for CEQA compliance 4.3 Coordinate with appropriate federal agencies, as needed, for NEPA compliance 4.4 Acquire all necessary permits, in its name 4.5 Evaluate alternatives and make recommendations to the PPC 4.6 Facilitate formation of a technical advisory panel for the Project, if and when PPC deems one necessary 4.7 Work with the various Parties to ensure they have all available information 4.8 Work with Metropolitan to bring its resources and expertise into the Project 4.9 Work to secure outside funding from State and Federal agencies, Metropolitan and other sources as appropriate and use these funds to reduce the costs to the Parties 4.10 MWOOC shall be responsible for providing accountings for the costs of all work completed and shall be responsible for invoicing and collecting deposits from each participating agency to cover the estimated costs on a periodic basis. 4.11 Administer grants, including the DWR Grant. 4.12 Utilize grant and other funding, if the same becomes available and applicable, to reimburse the Parties or reduce future participation costs. 4.13 In entering contracts on behalf of the PPC, MWDOC shall require contractors and consultants to name the individual agency members of the PPC as additional insureds for coverage related to the Project. 5 Other Local Agency Obligations Obligations of the other Parties shall include, without limitation, the following: 5.1 Provide funds to pay for its portion of shared costs consistent with this Agreement, as directed by the PPC. 5.2 Attend and participate in PPC meetings. 5.3 Provide assistance and support to MWDOC in seeking outside funding for the work activities. 6 Amendment to Add Parties After execution of this Agreement, other public water entities may be added as Parties to the Agreement and participate in the PPC only upon a written amendment to the Agreement approved unanimously by all Parties. The PPC shall propose for each such amendment the terms and conditions for adding a particular agency to the Agreement and the written amendment shall be prepared accordingly by MWDOC. These terms and conditions will include 4 FINAL v.3 0-10-08 a determination: by the PPC, pursuant to the provisions of Section-. 8 of this Agreement, of an appropriate payment amount for a share of past costs. 7 Time Is of the essence Time is of the essence in the performance of all obligations under this Agreement. The schedule presented by MWDOC requires that the Califbrni'a Coastal) Commission (CCC) CoastalDevelopment Permit (CDP) be approved on or before the December 2008 meeting of the CCC to allow the work to proceed on'the beach in, 2009. Before the CDP application can. be deemed complete and eligible for consideratibn by the CCC, other permits must first be acquired. These include permits from State Parks, Regionat Water Quality Control Board:,, State Lands Commission Lease and jurisdiction determinations ar-d consultations with US Corps of Engineers, Fish & Wildlife Service, National Marine Fisheries, and California Department of Fish & Game, The Parties shall make every effort to avoid any and all: delay in the submittal or processing of the applications for these permits. The anticipated Major Activities Schedule is provided in the table below: All Parties except: MWDOC (MWDOC is not a local funding partner) shall share equally in the cost of the Phase 3 work moving forward, irrespective of bow they, voted when the matter came before the PPC for approval. MWDOC shall administer the DWR Grant funding of $1,500,000.00', for the Project in accordance with the grant terms_ A proportionate divisian of costs shall be calculated by the PPC and invoiced to the Parties, by MWDOC. Payment of costs for Phase 3 work shall result in a dollar "entitlement" for each contributing Party or an "adjusted entitlement" (if changes are made as outlined below). The "entitlement"' or "adjusted entitlement" amount shall be used at certain times as outlined below to reimburse, Parties who may be ceasing their participation or if the project proceeds to the construction phase: 5 FINAL v.8 6-10-08 a. if a Party decides to stop funding the Project as provided herein, and if another public water entity expresses an interest in joining the Agreement, all of the existing Parties shall have a first right of refusal to take over a portion of the entitlement (in accordance with their proportion of all entitlements interested in receiving a portion of the entitlement being given up) of the Party that stopped its funding, upon the reimbursement of the departing Party for the portion of the entitlement taken over by the existing Parties. If the full entitlement of the Party stopping its funding is acquired by the other Parties under this right of first refusal, no excess entitlement will be available to support the addition of new Parties to the Agreement. If only a portion of the entitlement made available in this manner is acquired by the existing Parties, a new Party may be added to the Agreement to hold the remaining entitlement portion. Any new Party to the Agreement taking over a portion of the entitlement made available in this manner shall reimburse the Party that decided to stop funding the Project for the dollar entitlement received. The new Party shall be expected to join the PPC as provided in Section 6. b. If a Party decides to stop funding the Project and some amount of its entitlement remains after the other Parties are given their first right of refusal, and no outside parties are interested or approved to join the Agreement and take over that Party's position, the Party stopping its funding participation shall not be entitled to any reimbursement of its remaining entitlement until a new party is added to the Agreement at a later date or the Project proceeds to the construction phase. 1. If a new party is added to the Agreement at a later date, the Party stopping its funding participation shall be entitled to reimbursement for its entitlement or adjusted entitlement, without interest thereon, by the new party being added. 2. If the Project proceeds to the construction phase, any Party that stopped its funding participation during an earlier phase shall be entitled to reimbursement of its entitlement or adjusted entitlement, without interest thereon, by the Parties participating in the construction phase. C. After transfer of any portion of an entitlement to any existing or new Parties, the remaining costs of the Project moving forward shall be shared by the Parties based on the adjusted entitlement amount held by each Party after the transfer has been accounted for. d. If the Project proceeds to the construction phase, all entitlements or adjusted entitlements towards the Phase 3 work shall be reflected in an accounting which will provide the basis to reimburse entities (if they have ceased participation and have not been reimbursed previously in full) or credit entities (if they remain in the project) so that the cost of the Phase 3 work is ultimately charged to those agencies proceeding with construction in proportion to their construction ownership. For illustrative purposes only, a description of three possible reimbursement scenarios is attached hereto as Attachment B. 0 FINAL_ v.8 6-10-08 9 "(off Ramps" from Funding Obligations "Off Ramps," for purposes of this Agreement, are defined as logical stopping places where Parties or a Party can elect to stop funding a proportionate share of the Project. At any particular Off -Ramp, each Party shall be responsible for its equal share of the work up to and including to that point. in the event a Party elects to stop its funding and ceases to participate as a member of the PPC, that Party will be responsible for its share of costs up to the point of withdrawal as a member of the PPC. 9.1 Pre -defined Off -Ramps (1) and (2) and anticipated activities and expenditures in each fiscal year are shown in the Figure below and discussed more specifically as: 9.1.1 For FY 08-09, if for any reason the Project is unable to secure the Coastal Commission Permit, the Project will be halted and discussions will be held with the Parties on how to proceed. The estimated cost to all Parties through June 30, 2009, is $945,000. 9.1.2 At about the same time, if the bids or the estimated costs for the next phase of the work become excessive, as determined by any Party, then PPC discussions will be held with the Parties on bow to proceed. 9.1.3 For FY 09-10, if the pumping test fails to deliver appropriate quality water for the pilot program and there is no expectation that additional pumping will help, or if costs exceed the estimates, discussions will be held with the Parties on how to proceed. ,The estimated cost to all Parties through June 30, 2010, is $1,835,000. 7 FINAL v.8 6-10-08 9.2 Withdrawal from the Agreement . At any of the pre -defined Off -Ramps, any Party may elect to withdraw from the Project. Upon electing to withdraw, the withdrawing Party will be responsible for funding its share of the costs incurred before the date of election to withdraw, as determined by the PPC, plus a reasonable share of costs that become known to the PPC after the date of e[ection to withdraw but are determined by the PPC to relate to the period before the date of election to withdraw. In particular, the DVVR Grant requires completion of certain tasks. and reports at the end of the Project that may result in costs that should be spread over the entire period of the Project. Similarly, the Project permits will also have a variety of compliance issues that may result in costs. Upon completion of each aspect of the work, the PPC will work with DWR and possibly other grantors and regulatory agencies to determine the terms and conditions, and related costs, for wrapping up the rema.i�ni'ng work activities. A reasonable share of such costs will be estimated by the PPC at the time of withdrawal and added to the funding requirements for any Party withdrawing from the Agreement. A reconciliation of any underpayment or overpayment may be made by the PPC once actual costs are known. In addition to the pre -defined off -ramps, any Party can elect to withdraw from the Agreement at any other time upon the same terms and conditions as described above. FINAL v.8 6-10-08 At the time any Party withdraws from the Agreement, the remaining costs to complete the necessary work shall be divided among the remaining Parties by the PPC, taking into account any transfers of entitlements that have occurred. MWDOC shall prepare information that details the financial impacts on the Parties remaining. If enough Parties withdraw from the Agreement to make the financial impacts unacceptable, as determined by any Party, the PPC shall meet to consider halting the Project. In this event, the costs to shut down the Project shall be estimated and allocated among all PPC agencies at the time the decision is made to stop the Project. 10 HOLD HARMLESS AND LIABILITY Each Party agrees to indemnify, defend at its own expense, including attomeys' fees, and hold each other Party harmless from and against all claims, costs, penalties, causes of action, demands, losses and liability of any nature whatsoever, including but not limited to liability for bodily injury, sickness, disease or death, property damage (including loss of use) or violation of law, caused by or arising out of or related to any negligent act, error or omission, or willful misconduct of that indemnifying Party, its officers or employees, or any other agent acting pursuant to its control in the performance of this Agreement. 11 TERM The term of this Agreement shall be from the date last signed below to July 31, 2011, or until completion and payment of all costs of Phase 3 of the Project, whichever occurs later, unless the Agreement is terminated earlier by the Parties. This Agreement may be modified by written agreement of the Parties, including modification to extend the term. 12 NOTICE Any notice, invoice, payment made pursuant to this Agreement shall be sent to the Parties at their respective addresses shown below. If to MWDOC: Municipal Water District of Orange County 18700 Ward St. P.O. Box 20895 Fountain Valley, CA 92728 ATTN: General Manager If to SCWD: South Coast Water District 31592 West Street Laguna Beach, CA 92651 ATTN: General Manager If to MNWD: Moulton Niguel Water District 27500 La Paz Road P.O. Box 30203 Laguna Niguel, CA 92607-0203 ATTN: General Manager F FINAL v,8 6-10-08 If to LBCWD: Laguna Beach County Water District 306 Third Street P.O. Box 987 Laguna Beach, CA 92652 ATTN: General Manager If to CSC: City of San Clemente Utilities .Division 100 Avenida Presidio San Clemente, CA 92672 ATTN: City Manager If to CSJC: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 ATTN: City Manager Parties may change their address for this purpose by giving written notice to the other Parties as provided herein. 13 AMENDMENTS The Agreement may be amended by a written amendment as provided herein and executed by all Parties. 14 ASSIGNMENT No Party may assign or otherwise transfer any rights, interests or obligations under this Agreement without the written consent of all Parties. iN� ►1:x;;3_1 »3IIII I VA The partial or total invalidity of one or more provisions of this Agreement will not invalidate the remaining provisions. 16 GOVERNING LAW This Agreement is a contract governed by the laws of the State of California. The parties hereby agree and consent to the exclusive jurisdiction of the courts of the State of California. Venue for any action filed by any Party or Parties related to this Agreement shall be Orange County, California. 17 TERMINATION OF AGREEMENT This Agreement may be terminated by a majority of Parties by action of their respective governing boards or councils. Any individual Party can withdraw from the Agreement at one of the pre -defined "Off -ramps" or at any other time as previously described herein. 10 FI'N'AL v.8 6-10-08 This Agreemecit and any amendment hereto may be executed in two or more counterparts, and by each Party on a separate counterpart, each of which, when executed and delivered, shat be an original and all of which together shall constitute one instrument, with the same force and effect as though all signatures appeared on a single document. The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective agencies. IN WITNESS WHEREOF, the PARTIES have executed this Agreement as of the date below. Date By Michael P. Dunbar General Manager SCWD Approved as to Forrn-..- Date By: Betty Burnett General Counsell Date By Kevin t General Manager MWDOC Approved as to Form: Date � -- ?'e> - By: Daniel J. Payne General Counsel 11 FINAL v.8 6-10-08 This Agreement and any amendment hereto may be executed in two or more counterparts, and by each Party on a separate counterpart, each of which, when executed and delivered, shall be an original and all of which together shall constitute one instrument, with the same force and effect as though all signatures appeared on a single document. 19 SIGNATURES The individuals executing this Agreement represent and warrant.that they have the legal capacity and authority to do so on behalf of their respective agencies. IN WITNESS WHEREOF, the PARTIES have executed this Agreement as of the date below. Gate .8Z28 08 � Date By Michael P. Dunbar Kevin P. Hunt General Manager General Manager SCWD MWDOC Approved as to Form: Approved as to Form: Date •fir' '' �' �F> Date gy: a By: Betty Burnett General Counsel 11 Daniel J. Payne General Counsel FINAL v.8 6-10-08 Date .@ 11 (9� Date B�'�" By s �� / By _ Bob Gumerman Renae M. Ninchey General Manager General Manager MNWD LBCWD Approved as to Form, Approved as to Form: Date .` Date Y" By: General Counsel General Counsel Date Date By By Dave Adams George Scarborough City Manager City Manager City of San ,duan Capistrano City of San Clemente Approved as to Form. Approved as to Form: Date Date By: By: General Counsel General Counsel 12 Date Date By By Bot, Gumerman Renae M. Hinchey General Manager General Manager MNWD LBCWD Approved as to Form: Approved as to Form: Orate Date By: By: General Counsel General Counsel Date '4l Date By _ e�.;,. _.M, C4� By Dave Adams George Scarborough City Manager City Manager City of San Juan Capistrano City of San Clemente Approved as to Form: Date �} C By )){ ' � 6' General Counsel Approved as to Form: Date By: General Counsel 12 FINAL. v.8 6-10-08 FINAL v,8 6-10-08 Date Date B B Y Y John F. Foley Renae M. Hinchey General Manager General Manager 47 MNWD LBCWD Approved as to Form: Approved as to Form - Date Date, By: By: J� General Counsel General Counsel Date Date By By Dave Adams George Scarborough City Manager City Manager City of San Juan Capistrano City of San Clemente Approved as to Form: Date By: Approved as to Form: Date By: _ General Counsel General Counsel 12 Date By Bob Gumerrnan General Manager MNWD Approved as to Form: Date By: General Counsel Date By Dave Adams City Manager City of San Juan Capistrano Approved as to Form: Date By: .General Counsel FINAL v.8 6-10-08 Ew By Renae M. Hinchey General Manager LBCWD Approved as to Form: Date By: _ General Counsel Date By George 8carborbugh City Manager City of Sail Clemente Approved as to Form: 12 Attachment A Memorandum of Understanding Between'Municipal dater District of grange County and South Coast Water District Regarding the Potential Use of a Portion of the San Juan Creek Property for Location of an Ocean Desalination Plant This Memorandum of Understanding ("MOU") is entered into by and between the South Coast Water SCWD ("SCWD") and the Municipal Water District of Orange County ("MWDOC") (collectively "Parties") and is effective the 27th day of April, 20016 ("Effective Date"), as follows: Whereas, due to projected long-range water supply concerns throughout the Western United States, which will affect MWDOC and its member agencies, and due to improvements in local reliability that accrue from development of local resources, MWDOC has undertaken, in cooperation with Metropolitan Water District of Southern California ("MET") and others, the study of an ocean desalination plant ("Project"); Whereas, MWDOC plans to study various potential locations for the Project, including that portion of SCWD's San Juan Creek Property located to the south of the existing wastewater lift station, which is approximately 10 acres in size ("Site"); Whereas, the current concept for the Project envisions that the breadth of the design would allow desalinated water to be supplied to a number of MWDOC member agencies in the South Orange County area, including SCWD; Whereas, the Site is adjacent to San Juan Creek in the City of Dana Point, California and may be an appropriate location for the Project due to its proximity to the Pacific Ocean; Whereas, a portion of the Site is currently the subject of feasibility study by MWDOC for the Project; Whereas, SCWD, along with other MWDOC member agencies, would benefit from the reliability and availability of water from an ocean desalination source, if the same is developed in Orange County; Now, therefore, SCWD and MWDOC agree as follows: Section 1: SCWD is willing for the Site to be considered as a location for the Project. SCWD has participated in discussions with MWDOC and agrees to continue its support of MWDOC's study of the Site for feasibility analysis. In its support of MWDOC's study of the Site, SCWD has incurred and will continue to incur certain costs and expenses that have resulted in a benefit to MWDOC and its other member agencies. SCWD has requested, and MWDOC has agreed to fund, costs incurred by SCWD attendant to MWDOC's feasibility studies of the Site in the amount of five thousand dollars ($5,000) per year for a period of five (5) years ("Reserved Period") from the Effective Date hereinabove stated. Payments shall be due annually on the anniversary of the Effective Date. Section 2: In consideration of MWDOC's efforts in conducting and funding a feasibility study of the Site, SCWD agrees to continue its planning efforts for the San Juan Creek Property and will make available to MWDOC during the Reserved Period five (5) acres within the Site ("Reserved Area°') fbr location of a water treatment plant for the Project. The exact location and dimensions of the Reserved Area to be used for the Project, if any, shall be approved by SCWD based on other potential uses for the Site. Section 3: The Parties understand and agree that MWDOC`s interest in leasing the Reserved Area for the Project is dependent on a number of factors, including the results of the feasibility study of the Site currently underway. Based on its goals for the Project and information currently available to MWDOC, MWDOC represents that it anticipates meeting the following key milestones in the study and implementation of the Project during the Reserved Period: Section 4: During the Reserved Period, SCWD and MWDOC shall meet quarterly and each party shall brief the other on the. planning and development work each is undertaking for the Project and the remainder of the Site, as well as any new or proposed development or change in use of areas around the Site. During the quarterly meetings, MWDOC shall keep SCWD apprised of the status of the Project, including with respect to -the milestones listed above. The listed milestones represent estimated dates rather than obligations, and failure to meet one or more milestones does not result in the termination of this MOU. Section 5: MWDOC may terminate this MOU at any time upon 120 - days written notice to SCWD. Funds due under Section 1, above, shall be paid on or before the end of the 124 -day notice period and the amount of the payment small be prorated for the time period covered. In the event SCWD determines, in 2 Key Task Milestone 1. Completion of Feasibility Studies and Publication of Project Report Document January 2007 2. Formation of a JPA and Governance Structure to Move the Project forward dune 2007 3, Start Reserved Area Lease Negotiations July 2007 4. Completion of Project EIRfEIS July 2009 5. Award of DBO Contract August 2009 6. Start --up July 2013 Section 4: During the Reserved Period, SCWD and MWDOC shall meet quarterly and each party shall brief the other on the. planning and development work each is undertaking for the Project and the remainder of the Site, as well as any new or proposed development or change in use of areas around the Site. During the quarterly meetings, MWDOC shall keep SCWD apprised of the status of the Project, including with respect to -the milestones listed above. The listed milestones represent estimated dates rather than obligations, and failure to meet one or more milestones does not result in the termination of this MOU. Section 5: MWDOC may terminate this MOU at any time upon 120 - days written notice to SCWD. Funds due under Section 1, above, shall be paid on or before the end of the 124 -day notice period and the amount of the payment small be prorated for the time period covered. In the event SCWD determines, in 2 its sole discretion, that the Project is not progressing at a rate or in a manner that indicates adequate progress toward the Milestones referenced above, SCWD may give MWDOC written notice of its intent to terminate this MOU. Following such notice, MWDOC may present to SCWD within 96 days (1) a statement of its continued intent to proceed with development of the Project at the Reserved Area, (2) a report of the status of the Project and (3) if necessary, revised Milestones for the Project. SCWD shall consider these materials in good faith, and both Parties shall meet to discuss termination of the MOU. Following a deliberation period of at least 30 days following such meeting, SCWD may terminate this MOU. Section 6: If MWDOC determines that the Site is feasible and the Project moves forward, the terms of a lease for the Reserved Area, including the lease rate, shall be negotiated at a time mutually agreeable to the Parties and shall form the basis of a separate lease agreement. The Parties acknowledge that the lease rate will reflect fair market rent as determined at the time of the lease negotiations. Except as stated, this MOU is not intended to limit or otherwise restrict either of the Parties with respect to future lease rate negotiations. Section 7: During the Reserved Period, SCWD agrees to consider in good faith MWDOC's determinations as to the feasibility of constructing the Project on the Site. MWDOC will share with SCWD upon request all results of feasibility studies, environmental documentation and other information related to the suitability of the Site for the Project. SCWD further agrees to participate in meetings and discussions regarding the use of the Site, and to allow for further studies of the Site that do not interfere with SCWD`s continuing ownership, lease and/or use of the Site. Section S: During the Reserved Period and prior to any lease of the Reserved Area by MWDOC, SCWD may continue to consider all other uses of the Reserved Area, may continue the current use of the Reserved Area for leases on a month to month basis, or via leases otherwise consistent with this MDU, and may make decisions and undertake actions consistent with its rights and obligations as owner of the Reserved Area and party to this MOU. Section 9: SCWD shall retain the right to comment on the EIR for the Project and may participate in the permit process. MWDOC shall allow review of the screen check EIR by SCWD prior to circulation for public comment, and MWDOC shall consider in good faith all project mitigation options proposed by SCWD during the permit process. MWDOC shall consult with SCWD regarding the exterior design elements and general appearance of the Project, and MWDOC shall make reasonable efforts to coordinate the exterior design elements of the Project with other uses and proposed uses of the Site. This obligation is independent of any aesthetic review conducted during environmental review or the permitting process for the Project. 3 Section 10: SCWD represents and MWDOC acknowledges that access to the Site from Pacific Coast Highway and Stonehill Drive, as currently configured, may not be available for the Project. Additional access to the Site from Stonehill Drive is currently under construction. Access is dependent on rights shared with the County of Orange/Orange County Flood Control District, and SCWD makes no representations or warranties about the continued availability of particular access routes to MWDOC or any other party. As SCWD's lessee, MWDOC's access to the Site will be derivative of SCWD's access rights over the levee road connected to Stonehill Drive through the City of San Juan. MWDOC understands that obligations attendant to the use of the levee access road through the City of San ,Tuan may apply to the Project and are the responsibility of MWDOC. Section 11: During the Reserved Period, if SCWD considers any commitment to lease the Reserved Area to any third party for a time period one (1) year or greater, SCWD will give written notice to MWDOC of the proposed lease and all material terms at least thirty (30) days before presentation of such lease to SCWD's Board for final approval. Except as stated in Section- 12, SCWD agrees not to lease the Reserved Area for uses that would permanently impair the ability of MWDOC to use the Reserved Area for the Project. Section 12: if SCWD considers any offer of purchase for the Site or the Reserved Area made by any third party, or any commitment to lease the Reserved Area to any third party for a term of 4 years or greater, SCWD will give written notice to MWDOC of the proposed offer and all material terms at least one hundred twenty (120) days before presentation of such purchase/sale agreement or lease to SCWD's Board for final approval. Section 13: The referenced time periods for advance notice to MWDOC are provided to allow MWDOC time to consider making a competing offer to SCWD. SCWD,shall consider any competing offer by MWDOC in good faith. Section 14: During the Reserved Period, MWDOC shall have the right to enter the Site to conduct tours, surveys, geotechnical investigations, and environmental work necessary for the study of the feasibility, permitting and environmental compliance attendant to the Project. MWDOC agrees to provide SCWD with verbal or written notice at least 48 hours before access is required. Such access shall not be unreasonably withheld. Section 15: MWDOC represents, and SCWD acknowledges, that the likely method for further development and construction of the Project will be the creation of a Joint Powers Authority ("JPA") comprised of agencies with interests in and commitments to the Project. MWDOC may freely assign its rights and obligations under this MOU to such a .TPA. W. Section 16: The terms and conditions of this MOU may be modified by mutual written agreement of the parties. Section 17: This MOU shall remain in effect during the 5 -year Reserved Period terminating on April 27 2011, unless otherwise terminated at an earlier date as provided herein. As agreed to by the undersigned, duly authorized to execute this MOU: Date .lune 1, 2006•. By Michael P. Dunbar General Manager SCWD Date June 1, 2006 By:-�.- Betty Burnett District Counsel 5 Date )L/"�L�Z �G f j By Kevin Hunt General Manager MWDOC Date By: -- Daniel J. Payn General Counsel Attachment B Examples of Cost Sharing in the Project Under Various Scenarios ALL COSTS IN $1,000'S Example 1: Five Agencies Participate Through 2011 2007 & 2008 2009 2010 2011 Total Total Cost $225 $720 $890 $1,465 $3,300 No, of Agencies 5 5 5 5 Cost Per Agency $45 $144 $178 $293 $660 Conclusion: All agencies contribute the same $660k. Example 2: Five Agencies Participate Through 2009, With Four Thereafter 2007 & 2008 2009 2010 2011 Total Total Cost $225 $720 $890 $1,4615 $3,300 No. of Agencies 5 5 4 4 Cost Per Agency $45 $144 $223 $366 $778 Entitlements Total Conclusion: One agency contributed: $189 $189 Four agencies contributed: $778 $3,111 Total = $3,300 In 2010, the four agencies remaining in the project would have to get a budget increase From $660k to $778k to continue. If the project goes to construction, each agency would be credited the entitlement amounts shown above. The $3.3 million would be charged to the agencies proceeding with construction based on their capacity in the project. If the project does not go to construction, no money changes hands. Example 3: Five Agencies Start the Project, But One Agency Crops after 2009 2007 & 2008 2009 2010 2011 Total Cost $225 $720 $200 $0 No. of Agencies 5 5 5 5 Cost Per Agency $45 $144 $40 $0 Conclusion: One agency wants to stop at the end of 2009. Other agencies consider the increase in costs and decide to stop the project as well. The project stops at the end of 2009, but requires,costs in 2010 to wind things up. The cost to wind things up in 2010 is $20010. Each agency pays the same amount of $229k and the project does not go into construction. 1 Total $1,145 $229 TO: Dave Adams, City Manager 1�'Iw FROM: John G. O'Donnell, Utility Director 815/2008 SUBJECT: Consideration of the Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinization Plant - Municipal Water District of Orange County (MWDOC); South Coast Water District (SCWD); Laguna Beach County Water District (LBCWD), Moulton Niguel Water District (MNWD); and the City of San Clemente (CSC), and Appropriation of Funds RECOMMENDATION: By motion, Approve the Final Conformed Agency Participation Agreement with MWDOC, SCWD, LBCWD, MNWD, and CSC in the exploration of the feasibility, cost, benefits, and need for the development of domestic water supply from an ocean water desalinization plant; 2. Return $40,000 of the $236,000 allocated from the Capital Reserve Fund for this project on May 6, 2008 to the Capital Reserve Fund; and, 3. Authorize the City Manager to execute the final version of the agreement substantially in conformance with the attached version. SITUATION: The City Council approved the Agency Participation Agreement (version 4) with MWDOC, SCWD, LBCWD, and MNWD in the exploration of the feasibility, cost, benefits, and need for the development of domestic water supply from an ocean water desalinization plant at its meeting of May 6, 2008. Since version 4 was approved by the Council it has undergone several changes and is now finalized as version 8. Notable changes are: 1) The addition of the City of San Clemente, which will lower the phase III participations costs from $236,000 by $46,000 to $190,000; 2) The removal of language allowing the sale of a party's interest to a private party. Although the language remaining does not explicitly exclude it, the ability of the remaining participants to block such a sale may remove this as an option. This change occurred primarily because of concerns by the legal counsel for the project that the abilities to sell bonds and to form joint powers authority may be negatively impacted; and 3) A change in the sharing of the project operational cost from combined. capital plus operations cost D15 SUBJECT: Consideration of the Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinization Plant - Municipal Water District of Orange County (MWDOC); South Coast Water District (SCWD); Laguna Beach County Water District (LBCWD), Moulton Niguel Water District (MNWD); and the City of San Clemente (CSC), and Appropriation of Funds RECOMMENDATION: By motion, Approve the Final Conformed Agency Participation Agreement with MWDOC, SCWD, LBCWD, MNWD, and CSC in the exploration of the feasibility, cost, benefits, and need for the development of domestic water supply from an ocean water desalinization plant; 2. Return $40,000 of the $236,000 allocated from the Capital Reserve Fund for this project on May 6, 2008 to the Capital Reserve Fund; and, 3. Authorize the City Manager to execute the final version of the agreement substantially in conformance with the attached version. SITUATION: The City Council approved the Agency Participation Agreement (version 4) with MWDOC, SCWD, LBCWD, and MNWD in the exploration of the feasibility, cost, benefits, and need for the development of domestic water supply from an ocean water desalinization plant at its meeting of May 6, 2008. Since version 4 was approved by the Council it has undergone several changes and is now finalized as version 8. Notable changes are: 1) The addition of the City of San Clemente, which will lower the phase III participations costs from $236,000 by $46,000 to $190,000; 2) The removal of language allowing the sale of a party's interest to a private party. Although the language remaining does not explicitly exclude it, the ability of the remaining participants to block such a sale may remove this as an option. This change occurred primarily because of concerns by the legal counsel for the project that the abilities to sell bonds and to form joint powers authority may be negatively impacted; and 3) A change in the sharing of the project operational cost from combined. capital plus operations cost Agenda Report August 5, 2008 Paqe 2 to a straight take -and -pay agreement. The most economical way to run the plant is as a baseline plant in a take -and -pay arrangement. This will serve to lower the per acre-foot cost of water and conform the operation of the plant to a logical method. Version 8 is included as Attachment 1. BACKGROUND: Recent events have brought into question the guarantee of water from Metropolitan Water District of Southern California (MET.) These events include the recent 4.4 Colorado River Compact, State Water Project delivery cutbacks due to issues with the Bay Delta Smelt, and predictions of a long term drought for the South West as a whole. San Juan Capistrano's Domestic Water Master Plan (DWMP) depends on the pipeline capacity it has from MET's Diemer Filtration Plant as if it were a guarantee of uninterrupted water supply. MET has and will continue to make every effort to meet the water demands of its customers. If MET cannot obtain water it will have to fairly allocate to its customer base what it can obtain, treat, and deliver. If MET reduces its allocation, the City would need to develop other sources or do without. The City has not identified ocean water desalination in its Domestic Water Master Plan (DWMP) as part of a plan to ensure water supply reliability, but should now, given the conditions and some of the predictions, consider alternative sources of water to make up for the shortfalls of MET water. MWDOC has carried the development of the Ocean Desalination Project (ODP) for several years as a participant in MET's Seawater Desalination Program. To this end MWDOC has completed and funded a considerable portion of the pre -development work and has identified the ODP as a viable project. The work completed thus far includes: 1) An initial Feasibility study; 2) Full scale testing of a key technology, the slant well drilling process; 3) Garnering the support of key environmental groups, the State Parks, the State Lands Commission, the Coastal Commission, etc.; 4) Securing a MET grant of $250 per acre foot of developed water over 25 -year period on a sliding scale; 5) Laying the ground work for the pursuit of additional Federal, State, and MET Grants to bring the projected cost of ODP water in line with MET import water; and, 6) Entering into an Agreement with the California Department of Water Resources (DWR) to receive $1.5 million toward the cost of the next phase in developing the ODP. (This is in addition to the previously received grants from the USEPA, USBR, and DWR totaling $1.5 million.) To further explore the technical feasibility, determine the performance, and define the costs of the ODP, interested agencies are entering into an Agency Participation Agreement (APA) (Attachment 1.) The fundamental purpose of the APA is to establish the rights and responsibilities of the participants and conduct the consultation, evaluation, negotiation, and technical investigation to provide sufficient information for the development and definition of a project that will lead to a Joint Participation Agreement (JPA). The JPA will be different in that it will assign capacity rights in the ODP and divide the costs, voting rights, and allocations according to that capacity of the project — the take -and -pay arrangement. Both the APA and the JPA achieve economies of scale not available were each agency to pursue its capacity interest on its own. The Agenda Report August 5, 2008 Page 3 APA is also a low cost, lower risk means of project participation to advance the project investigation and development. The APA currently allows each participant an equal share in voting rights and requires each participant to pay an equal share of the project costs to date. It also sets a frame work for the: 1) Disengagement (the off ramp) should one or all APA participants determine that the costs exceed the benefits; 2) Work and goals of the current phase; 3) Governance; 4) Rules of Amendment; 5) Rights and Obligations. Undefined, and intentionally left out are Capacity Rights in the ODP. Participation in the APA requires that each agency send one member of its governing board (in the Case of San Juan Capistrano, a City Council Member) and one staff member to provide direction as needed on an ongoing basis to the "Project Participation Committee" (PPC.) Decisions related to continued participation in the Agreement and approval of any amendments to the Agreement shall be made by the Parties' governing boards. All Parties shall share equality in the cost of each item of work. For purposes of voting on an item under consideration by the PPC, each Party shall have one vote. Items presented to the PPC for consideration that are related to the ongoing implementation of the APA and its approved goals and objectives, shall be decided during meetings of the PPC by a super majority vote (two thirds) of the Parties. Also included in the APA are off ramps — points at which more reliable information, permits, or funding will have been developed to allow each agency to consider continued participation or disengagement. FINANCIAL CONSIDERATIONS: The total future cost of the ODP is currently projected at $136 million for 15 million gallons per day of domestic water capacity. The projected cost of the product water is $1,287 per acre foot (AF.) Even with the currently secured MET subsidy of $250 per AF ODP water still costs more than the imported water at $528.50 per AF; and 603.50 per AF starting January 1, 2009. Currently MWDOC is in discussions with MET to'get in addition to the $250 per AF subsidy, full participation by MET, with MET agreeing to sell product water to the project participants at the MET rate. This would improve the economics of this project. Currently costs are limited to the costs of exploration and evaluation. The total cost of this work is $4.8 million, minus a grant of $1.5 million, for a shared cost of $3.3 million to be divided equally amongst the project participants. Cost of participation in the ODP is best defined according to the participant matrix and off ramp consideration shown below. Currently there are 4 project participants, so the City would be the fifth participant. At this point, no other potential participants have come forward with an expression of interest. With the closing of the open entry at this point no other participants will be allowed with out the unanimous approval of the parties involved. The City's participation costs would be $190,000 for participation up to off ramp 1, an additional $178,000 for continued participation up to off ramp 2, and an additional cost of $292,000 for participation up to off ramp 3. At this point, the City is effectively being Agenda Report August 5, 2008 Page 4 asked to commit to participation up to off ramp 1; which will cost $190,000 rather than the $236,000 allocated on May 5, 2008. This will lower the project cost by $46,000. $6,000 has been retained cover the cost of staff time and other expenses incurred by San Juan for the project. It should be noted that if the City chooses to disengage before the achievement of the goals established for off ramp 1 that it may incur costs for work already committed; but not more that the off ramp 1 level. There is no guarantee that the City can recover its sunk costs should it disengage and another agency effectively take its place. The APA has language to allow the City to sell its interest to another public water agency, if the existing participants do not exercise a first right of refusal to buy out the City. WATER ADVISORY COMMISSION COMMENTS: Version 4 of this agreement was presented to the Water Advisory Commission at its meeting of March 25, 2008 and version 8 brought back for further consideration on its meeting of April 22, 2008. At its March meeting the Commission had several comments regarding the structure of the draft agreement as presented. These comments were that: 1) The City should maintain the right to sell its position in the event it disengages at one of the off ramps, and can find a willing and acceptable buyer; 2) That clarifying language be added to the off ramp provisions to allow departure prior to the pre -defined off ramps; 3) Clarify in the APA, the type of management and governing arrangement that will own and operate the ODP; and 4) Have conducted an evaluation of the relevance of this project to the City's overall water needs, to further consider the value of participation in light of the impacts of recycled water occurring or not occurring, expanding the GWRP, potential import restrictions, and enhanced conservation efforts. At a meeting held with the project participants on April 17, 2008, to discuss the changes to the APA proposed by the Commission, the requested modifications were agreed upon to: 1) Allow exiting participants to sell their interest to another public water agency, after the existing participants are allowed to exercise a first right of refusal; 2) Allow exit at any point after meeting previous obligations; and, 3) Reflect the intent of Agenda Report Paae 5 August 5, 2008 the project's participants to form a joint powers authority (JPA) or at least structure the organization in the manner of a JPA. These changes were presented to the Commission at its meeting of April 22, 2008, at which the Commission reiterated its desire that the APA allow a departing participant to sell its interest to any buyer, public or private. At this point in time, the. project participants have rejected the concept of sale of interest to a private party. The Commission recommended the APA to the City Council by a vote of 4-0; with reservation regarding the ability to sell the City's interest to a private party. NOTIFICATION: South Coast Water District Moulton Niguel Water District Laguna Beach County Water District Municipal Water District of Orange County City of San Clemente RECOMMENDATION: By motion, 1. Approve the Final Conformed Agency Participation Agreement with MWDOC, SCWD, LBCWD, MNWD, and CSC in the exploration of the feasibility, cost, benefits, and need for the development of domestic water supply from an ocean water desalinization plant; 2. Return $40,000 of the $236,000 allocated from the Capital Reserve Fund for this project on May 6, 2008 to the Capital Reserve Fund; and, 3. Authorize the City Manager to execute the final version of the agreement substantially in conformance with the attached version. Respectfully submitted, i2n G. O'Donnell, Utility Director Prepared by, Eric Bauman, PE, Water Engineering Manager Attachments: 1. Draft Agency Participation Agreement, version 8. v.816-10-08 Agency Participation Agreement for Phase 3 -- Extended Pumping and Pilot Plant Testing Dana Point Ocean Water Desalination Project This agreement (Agreement) between the Municipal Water District of Orange County (MWDOC), South Coast Water District (SCWD), Laguna Beach County Water District, Moulton Niguel Water District, the City of San Clemente (CSC) and the City of San Juan Capistrano (CSJC) (Parties, or individually, Party), establishes a framework for cooperation with regard to the next stage, referred to herein as "Phase 3," in the Dana Point Ocean Water Desalination Project (Project), which consists primarily of work related to extended pumping and pilot plant testing. RECITALS: A. The Parties are water agencies operating within Orange County, California, and all share a responsibility for ensuring a reliable water supply for the area they serve. Each Party, through its forming legislation, has the authority to develop water supply sources and work for the development of such sources (see, for example, Water Code Section 31020 et seq.). Under Government Code Section 6502, the Parties may work cooperatively for the development of a project benefiting a common purpose. B. Each Party has independently identified ocean water desalination as part of its plan to ensure water supply reliability. C. A site owned by SCWD adjacent to San Juan Creek in the City of Dana Point, California (Site) has been identified by MWDOC as an appropriate location for the Project due to its proximity to the Pacific Ocean, and MWDOC and SCWD have entered into a Memorandum of Understanding dated April 27, 2006, attached hereto as Attachment A and incorporated herein by this reference, establishing access and other rights to the Site for purposes of continuing a feasibility study. D. MWDOC has pursued development of the Project for several years as a participant in Metropolitan Water District of Southern California's (Metropolitan) Seawater Desalination Program to preserve the option to receive incentive funding of up to $250 per acre foot once the ocean desalination plant begins to produce water. MWDOC has also entered into an agreement with the California Department of Water Resources (DWR) to receive $1.5 million toward the cost of developing a pilot plant as part of the Phase 3 work activities. MWDOC is working to obtain additional state, federal and Metropolitan funding for Phase 3 work activities as well as for construction of the full-scale plant. E. Preliminary feasibility studies for the Project at the Site have been completed, and the Parties now wish to move on to Phase 3 of the investigation, which will involve extended pumping of the slant well previously constructed (Test Slant Well) and development of a Pilot Plant to test treatment processes, as described in Section 1.2 of this Agreement. If the Phase 3 feasibility work is successful in demonstrating that the Project can be implemented in a cost-effective manner, the Parties intend to move forward with implementation of the Project via a formal Joint Powers Agreement in which each implementing party will have a specific agreed-upon Project capacity. The Parties intend that under a Joint Powers Agreement, each agency will pay its proportionate share of ATTACHMENT 1 v.8 16-10-08 project capital, operations and maintenance costs, and that contributions for such costs will be based on project capacity ownership, irrespective of whether water was received from the plant or another source. THEREFORE, the Parties agree as follows: 1. Introduction The Parties' purpose in entering into this Agency Participation Agreement for Phase 3 — Extended Pumping and Pilot Plant Testing ("Agreement") is to establish procedures and a framework that will facilitate collective decisions involving cost sharing and other issues related to the activities required for the next stage of the Project, which will consist mainly of extended pumping of the Test Slant Well and pilot plant testing. Extended pumping of the Test Slant Well is necessary to (1) pull in ocean water to test water quality and conduct pilot plant process treatment evaluation studies, (2) determine the effectiveness of the slant well to provide pretreatment, (3) validate the groundwater model for full scale feedwater capacity, (4) determine the impacts on operation of existing groundwater facilities and the lower San Juan Basin as a whole, and (5) update and refine the engineering cost estimate for the Project. MWDOC will provide staff support to facilitate execution of the work, and all Parties will share the cost of the work as provided herein. 1.1 Estimated Phase 3 Costs to be Shared Total cost for this Phase 3 work is estimated at $4,800,000. To date, $1,500,000 in Proposition 50 grant funds have been secured by MWDOC from DWR (DWR Grant). The net cost to the Parties is thus estimated to be approximately $3,300,000, which will be divided among the Parties as provided herein. Efforts to secure funds from other sources will continue by MWDOC with support of the other parties, and additional funding available for the Project could reduce the share of costs owed. 1.2 Phase 3 Work Phase 3 work activities for the Project are anticipated to include, in general terms, the following: • Preparation of the engineering services request for proposals for the Project • Development of a Pilot Plant test plan • Completion of CEQA and NEPA environmental documentation for the test plan • Permitting for the test plan • Negotiation of mitigation fees with State Parks for use of the Doheny State Beach • Design and procurement as needed for the pumping and pilot plant facilities • Installation of the test facilities • Conduct extended pumping test and water quality sampling • Installation and pilot plant process testing • Completion of hydrogeology and groundwater modeling update • Assessment of Project impacts on the lower San Juan Basin • Preparation of draft and final reports • Periodic service and download data from the two monitoring wells Begin work on determining the terms and conditions for the following items. (1) obtaining capacity in the San Juan Creek Ocean Outfall and (2) securing a land lease for the Project site from SCWD. This work will include, at a minimum, development of rough cost estimates for each item and development of a cost proposal and schedule for completing the work on both items. More advanced work on these items will not be initiated until a budget is approved by the governing boards or councils or the PPC, as required. 2 Project Participation Committee 2.1 Direction needed on an ongoing basis and related to the progress of the work shall be provided by a "Project Participation Committee" (PPC). The PPC will be comprised of one staff member and one governing board member or city council member from each of the Parties, including MWDOC, as designated by their respective governing boards or city councils. For purposes of voting on an item within the limited powers of the PPC, as established herein, each Party shall have one vote except MWDOC, which shall be a non-voting member of the PPC. MWDOC may otherwise fully participate in all PPC meetings. 2.2 Decisions related to initial participation in the Agreement and any amendment to the Agreement, including but not limited to amendments to add Parties to the Agreement and amendments related to funding or cost sharing, shall be made by the Parties' governing boards or city councils. In the interest of efficiency and economy, other decisions related to the ongoing implementation of Phase 3 that will not amend the terms of the Agreement shall be subject only to PPC approval by at least a 213 vote of all Parties. 2.3 All Parties except MWDOC shall share in the cost of each item of work approved by the Parties up to the actual total amount expended and shared between the Parties to a total of $3.3 million (the "Agreement Estimated Cost"). Expenditures that would bring the total shared expenditures above the Agreement Estimated Cost shall be subject to review and approval of the governing body of each Party and must be approved as an amendment to this Agreement prior to expenditure. 3 SCWD's Obligations SCWD's obligations include, without limitation, the following: 3.1 SCWD owns the Site and shall in that capacity interface with the State Park at Doheny and other local interests or agencies that have questions or concerns about the Project. 3.2 SCWD will provide funds to pay for its portion of shared costs consistent with this Agreement, as directed by the PPC. 3.3 SCWD is hereby designated as the local agency primarily responsible for the Project. In this capacity, SCWD's PPC Committee member shall preside over meetings of the PPC. 3.4 SCWD shall work closely with MWDOC as needed and will be responsible for providing information about the PPC to the other local agencies. 3.5 SCWD shall cooperate with MWDOC in seeking outside funding for the work activities. 3 v.816-1 0-08 3.6 In entering contracts on behalf of the PPC, SCWD shall require contractors and consultants to name the individual agency members of the PPC as additional insureds for coverage related to the Project. 4 MWDOC's Obligations MWDOC's obligations include, without limitation, the following: 4.1 Provide staff time to outline and manage the work activities. This includes working with the various consultants authorized by the PPC to complete the Project tasks. 4.2 Serve as the lead agency for CEQA compliance 4.3 Coordinate with appropriate federal agencies, as needed, for NEPA compliance 4.4 Acquire all necessary permits, in its name 4.5 Evaluate alternatives and make recommendations to the PPC 4.6 Facilitate formation of a technical advisory panel for the Project, if and when PPC deems one necessary 4.7 Work with the various Parties to ensure they have all available information 4.8 Work with Metropolitan to bring its resources and expertise into the Project 4.9 Work to secure outside funding from State and Federal agencies, Metropolitan and other sources as appropriate and use these funds to reduce the costs to the Parties 4.10 MWDOC shall be responsible for providing accountings for the costs of all work completed and shall be responsible for invoicing and collecting deposits from each participating agency to cover the estimated costs on a periodic basis. 4.11 Administer grants, including the DWR Grant. 4.12 Utilize grant and other funding, if the same becomes available and applicable, to reimburse the Parries or reduce future participation costs. 4.13 In entering contracts on behalf of the PPC, MWDOC shall require contractors and consultants to name the individual agency members of the PPC as additional insureds for coverage related to the Project. 5 Other Local Agency Obligations Obligations of the other Parties shall include, without limitation, the following: 5.1 Provide funds to pay for its portion of shared costs consistent with this Agreement, as directed by the PPC. 5.2 Attend and participate in PPC meetings. 5.3 Provide assistance and support to MWDOC in seeking outside funding for the work activities. 6 Amendment to Add Parties After execution of this Agreement, other public water entities may be added as Parties to the Agreement and participate in the PPC only upon a written amendment to the Agreement approved unanimously by all Parties. The PPC shall propose for each such amendment the terms and conditions for adding a particular agency to the Agreement and the written amendment shall be prepared accordingly by MWDOC. These terms and conditions will include 151 v.8/6-10-08 a determination by the PPC, pursuant to the provisions of Section 8 of this Agreement, of an appropriate payment amount for a share of past costs. 7 Time Is of the Essence Time is of the essence in the performance of all obligations under this Agreement. The schedule presented by MWDOC requires that the California Coastal Commission (CCC) Coastal Development Permit (CDP) be approved on or before the December 2008 meeting of the CCC to allow the work to proceed on the beach in 2009. Before the CDP application can be deemed complete and eligible for consideration by the CCC, other permits must first be acquired. These include permits from State Parks, Regional Water Quality Control Board, State Lands Commission Lease and jurisdiction determinations and consultations with US Corps of Engineers, Fish & Wildlife Service, National Marine Fisheries, and California Department of Fish & Game. The Parties shall make every effort to avoid any and all delay in the submittal or processing of the applications for these permits. The anticipated Major Activities Schedule is provided in the table below: ASM 2007-08' ' 2006-09.:: ` 200910 2010•11 'JAI A4 Js ora J -PA : AJ 3-8 04.3 JW A4 dS 04 I -M . AJ Major Activity . Project Committee Organization Environmental Documentation Permits and Approvals Design/Procurement of Test Facilities Installation of Test Faciliites Extended Pulping & Water Quality Plant Process Testing Hydrogeology & Groundwater Modeling ■ ■ Draft and Final Reports ftev Fab 34, 2WB 8 Cost Sharinq All Parties except MWDOC (MWDOC is not a local funding partner) shall share equally in the cost of the Phase 3 work moving forward, irrespective of how they voted when the matter came before the PPC for approval. MWDOC shall administer the DWR Grant funding of $1,500,000.00 for the Project in accordance with the grant terms. A proportionate division of costs shall be calculated by the PPC and invoiced to the Parties by MWDOC. Payment of costs for Phase 3 work shall result in a dollar "entitlement" for each contributing Party or an "adjusted entitlement" (if changes are made as outlined below). The "entitlement" or "adjusted entitlement" amount shall be used at certain times as outlined below to reimburse Parties who may be ceasing their participation or if the project proceeds to the construction phase: 1*1 v.8 16-10-08 a. If a Party decides to stop funding the Project as provided herein, and if another public water entity expresses an interest in joining the Agreement, all of the existing Parties shall have a first right of refusal to take over a portion of the entitlement (in accordance with their proportion of all entitlements interested in receiving a portion of the entitlement being given up) of the Party that stopped its funding, upon the reimbursement of the departing Party for the portion of the entitlement taken over by the existing Parties. If the full entitlement of the Party stopping its funding is acquired by the other Parties under this right of first refusal, no excess entitlement will be available to support the addition of new Parties to the Agreement. If only a portion of the entitlement made available in this manner is acquired by the existing Parties, a new Party may be added to the Agreement to hold the remaining entitlement portion. Any new Party to the Agreement taking over a portion of the entitlement made available in this manner shall reimburse the Party that decided to stop funding the Project for the dollar entitlement received. The new Party shall be expected to join the PPC as provided in Section 6. b. If a Party decides to stop funding the Project and some amount of its entitlement remains after the other Parties are given their first right of refusal, and no outside parties are interested or approved to join the Agreement and take over that Party's position, the Party stopping its funding participation shall not be entitled to any reimbursement of its remaining entitlement until a new party is added to the Agreement at a later date or the Project proceeds to the construction phase. I . If a new party is added to the Agreement at a later date, the Party stopping its funding participation shall be entitled to reimbursement for its entitlement or adjusted entitlement, without interest thereon, by the new party being added. 2. If the Project proceeds to the construction phase, any Party that stopped its funding participation during an earlier phase shall be entitled to reimbursement of its entitlement or adjusted entitlement, without interest thereon, by the Parties participating in the construction phase. C. After transfer of any portion of an entitlement to any existing or new Parties, the remaining costs of the Project moving forward shall be shared by the Parties based on the adjusted entitlement amount held by each Party after the transfer has been accounted for. d. if the Project proceeds to the construction phase, all entitlements or adjusted entitlements towards the Phase 3 work shall be reflected in an accounting which will provide the basis to reimburse entities (if they have ceased participation and have not been reimbursed previously in full) or credit entities (if they remain in the project) so that the cost of the Phase 3 work is ultimately charged to those agencies proceeding with construction in proportion to their construction ownership. For illustrative purposes only, a description of three possible reimbursement scenarios is attached hereto as Attachment B. 9 v.8 / 6-10-08 9 "Off Ramps" from Funding Obligations "Off Ramps," for purposes of this Agreement, are defined as logical stopping places where Parties or a Party can elect to stop funding a proportionate share of the Project. At any particular Off -Ramp, each Party shall be responsible for its equal share of the work up to and including to that point. In the event a Party elects to stop its funding and ceases to participate as a member of the PPC, that Party will be responsible for its share of costs up to the point of withdrawal as a member of the PPC. 9.1 Pre -defined Off -Ramps (1) and (2) and anticipated activities and expenditures in each fiscal year are shown in the Figure below and discussed more specifically as: 9.1.1 For FY 08-09, if for any reason the Project is unable to secure the Coastal Commission Permit, the Project will be halted and discussions will be held with the Parties on how to proceed. The estimated cost to all Parties through June 30, 2009, is $945,000. 9.1.2 At about the same time, if the bids or the estimated costs for the next phase of the work become excessive, as determined by any Party, then PPC discussions will be held with the Parties on how to proceed. 9.1.3 For FY 09-10, if the pumping test fails to deliver appropriate quality water for the pilot program and there is no expectation that additional pumping will help, or if costs exceed the estimates, discussions will be held with the Parties on how to proceed. The estimated cost to all Parties through June 30, 2010, is $1,835,000. 7 v.S / 6-10-08 9.2 Withdrawal from the Agreement At any of the pre -defined Off -Ramps, any Party may elect to withdraw from the Project. Upon electing to withdraw, the withdrawing Party will be responsible for funding its share of the costs incurred before the date of election to withdraw, as determined by the PPC, plus a reasonable share of costs that become known to the PPC after the date of election to withdraw but are determined by the PPC to relate to the period before the date of election to withdraw. In particular, the DWR Grant requires completion of certain tasks and reports at the end of the Project that may result in costs that should be spread over the entire period of the Project. Similarly, the Project permits will also have a variety of compliance issues that may result in costs. Upon completion of each aspect of the work, the PPC will work with DWR and possibly other grantors and regulatory agencies to determine the terms and conditions, and related costs, for wrapping up the remaining work activities. A reasonable share of such costs will be estimated by the PPC at the time of withdrawal and added to the funding requirements for any Party withdrawing from the Agreement. A reconciliation of any underpayment or overpayment may be made by the PPC once actual costs are known. In addition to the pre -defined off -ramps, any Party can elect to withdraw from the Agreement at any other time upon the same terms and conditions as described above. M v.8/6-10-08 At the time any Party withdraws from the Agreement, the remaining costs to complete the necessary work shall be divided among the remaining Parties by the PPC, taking into account any transfers of entitlements that have occurred. MWDOC shall prepare information that details the financial impacts on the Parties remaining. If enough Parties withdraw from the Agreement to make the financial impacts unacceptable, as determined by any Party, the PPC shall meet to consider halting the Project. In this event, the costs to shut down the Project shall be estimated and allocated among all PPC agencies at the time the decision is made to stop the Project. 10. HOLD HARMLESS AND LIABILITY Each Party agrees to indemnify, defend at its own expense, including attorneys' fees, and hold each other Party harmless from and against all claims, costs, penalties, causes of action, demands, losses and liability of any nature whatsoever, including but not limited to liability for bodily injury, sickness, disease or death, property damage (including loss of use) or violation of law, caused by or arising out of or related to any negligent act, error or omission, or willful misconduct of that indemnifying Party, its officers or employees, or any other agent acting pursuant to its control in the performance of this Agreement. illiiii�7►� The term of this Agreement shall be from the date last signed below to July 31, 2011, or until completion and payment of all costs of Phase 3 of the Project, whichever occurs later, unless the Agreement is terminated earlier by the Parties. This Agreement may be modified by written agreement of the Parties, including modification to extend the term. E v.816-10-08 12 NOTICE Any notice, invoice, payment made pursuant to this Agreement shall be sent to the Parties at their respective addresses shown below. If to MWDOC: Municipal Water District of Orange County 18700 Ward St. P.O. Box 20895 Fountain Valley, CA 92728 ATTN: General Manager If to SCWD: South Coast Water District 31592 West Street Laguna Beach, CA 92651 ATTN: General Manager If to MNWD: Moulton Niguel Water District 27500 La Paz Road P.O. Box .30203 Laguna Niguel, CA 92607-0203 ATTN: General Manager If to LBCWD: Laguna Beach County Water District 306 Third Street P.O. Box 987 Laguna Beach, CA 92652 ATTN: General Manager If to CSC: City of San Clemente Utilities Division 100 Avenida Presidio San Clemente, CA 92672 ATTN: City Manager If to CSJC: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 ATTN: City Manager Parties may change their address for this purpose by giving written notice to the other Parties as provided herein. 13 AMENDMENTS The Agreement may be amended by a written amendment as provided herein and executed by all Parties. 10 v.8 / 6-10-08 14 ASSIGNMENT No Party may assign or otherwise transfer any rights, interests or obligations under this Agreement without the written consent of all Parties. 16 SEVERABILITY The partial or total invalidity of one or more provisions of this Agreement will not invalidate the remaining provisions. 16 GOVERNING LAW This Agreement is a contract governed by the laws of the State of California. The parties hereby agree and consent to the exclusive jurisdiction of the courts of the State of California. Venue for any action filed by any Party or Parties related to this Agreement shall be Orange County, California. 17 TERMINATION OF AGREEMENT This Agreement may be terminated by a majority of Parties by action of their respective governing boards or councils. Any individual Party can withdraw from the Agreement at one of the pre -defined "Off -ramps" or at any other time as previously described herein. 18 - COUNTERPARTS This Agreement and any amendment hereto may be executed in two or more counterparts, and by each Party on a separate counterpart, each of which, when executed and delivered, shall be an original and all of which together shall constitute one instrument, with the same force and effect as though all signatures appeared on a single document. 19 SIGNATURES The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective agencies. IN WITNESS WHEREOF, the PARTIES have executed this Agreement as of the date below. Date Date By Michael P. Dunbar General Manager SCW D By Kevin P. Hunt General Manager MWDOC 11 Approved as to Form: Date By: Betty Burnett General Counsel Date By John F, Foley General Manager MNWD Approved as to Form: Date By: General Counsel Date By Dave Adams City Manager City of San Juan Capistrano 's • 1i Approved as to Form: Date By: Daniel J. Payne General Counsel Date By Renae M. Hinchey General Manager LBCWD Approved as to Form: Date By: General Counsel Date By George Scarborough City Manager City of San Clemente Approved as to Form: Approved as to Form: 12 Date By: City Attorney Date 1-2 13 City Attorney v.816-10-08 Attachment A. ---- San Juan Creek Property MOU 14 v.8 16-10-08 Attachment B Examples of Cost Sharing in the Project Under Various Scenarios ALL COSTS IN $1,000'S Example 1: Five Ageneses Participate Through 2011 2007 & 2008 2009 2010 2011 Total Total Cost $225 $720 $890 $1,465 $3,300 No. of Agencies 5 5 5 5 Cost Per Agency $45 $144 $178 $293 $660 Conclusion: All agencies contribute the same $660k Example 2: Five Agencies Participate Through 2009, With Four Thereafter 2007 & 2008 2009 2010 2011 Total Total Cost $225 $720 $890 $1,465 $3,300 No. of Agencies 5 5 4 4 Cost Per Agency $45 $144 $223 $366 $778 Entitlements Total Conclusion: One agency contributed: $189 $189 Four agencies contributed: $778 $3,111 Total = $3,300 In 2010, the four agencies remaining in the project would have to get a budget increase from $660k to $778k to continue. If the project goes to construction, each agency would be credited the entitlement amounts shown above. The $3.3 million would be charged to the agencies proceeding with construction based on their capacity in the project. If the project does not go to construction, no money changes hands. Example 3: Five Agencies Start the Project, But One Agency Drops after 2009 2007 & 2008 2009 2010 2011 Total Cost $225 $720 $200 $0 No, of Agencies 5 5 5 5 Cost Per Agency $45 $144 $40 $0 Conclusion: One .agency wants to stop at the end of 2009. Other agencies consider the increase in costs and decide to stop the project as well. The project stops at the end of 2009, but requires costs in 2010 to wind things up. The cost to wind things up in 2010 is $200k. Each agency pays the same amount of $229k and the project does not go into construction. 15 Total $1,145 $229 32400 PASEO A®EL.ANTC SAN .JUAN CAPIS"i RANO, CA 92675 (949) 493-1171 (949) 493-1053 FAX www.sanjitaneapistrano.org NOTIFICATION OF MEETING OF POTENTIAL INTEREST OF THE SAN JUAN CAPISTRANO CITY COUNCIL The City Council of San Juan Capistrano will meet at 6:00 p.m. on Tuesday, August 5, 2008 in the City Council Chamber in City Hall, to consider: "Consideration of the Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinization Plant - Municipal Water District of Orange County (MWDOC); South Coast Water District (SCWD); Laguna Beach County Water District (LBCWD), Moulton Niguel Water District (MNWD); and the City of San Clemente (CSC), and Appropriation of Funds" — Item No. D15. If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the City Council through correspondence addressed to the Council and/or by attending the meeting and speaking to the Council during the public meeting. Correspondence related to this item must be received at the City Clerk's office by 5:00 p.m. on Monday, August 4, 2008 to allow time for the Council to consider its content. If you would like to speak at the meeting, please complete a yellow "Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Mayor when the item is considered. You have received this notice at the request of the City staff member Eric P. Bauman, Water Engineering Manager. You may contact that staff member at (949) 487-4312 with any questions. The agenda, including agenda reports, is available to you on our web site: www.san'uancapistrano.org. If you would like to subscribe to receive a notice when agendas are posted to the web site, please make that request by sending an e-mail to: cit clerk san'uanca istrano.or . Meg Monahan, MMC City Clerk cc: South Coast Water District; Moulton Niguel Water District; Laguna Beach County Water District; Laguna Beach County Water District, Municipal Water District of Orange County; City of San Clemente; John G. O'Donnell, Utility Director, Eric P. the Past to Enhance the Future Printed on 100% recycled paper MEMBERS OF THE CITY COUNCIL Ir[uaaaxeTE@ SAM ALLL VATO THOMAS W. HRIBAR ESTABIIS�EO �' �gs0 MARK NIELSEN 1 76 JOE SOTO DR. LONDRES U80 NOTIFICATION OF MEETING OF POTENTIAL INTEREST OF THE SAN JUAN CAPISTRANO CITY COUNCIL The City Council of San Juan Capistrano will meet at 6:00 p.m. on Tuesday, August 5, 2008 in the City Council Chamber in City Hall, to consider: "Consideration of the Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinization Plant - Municipal Water District of Orange County (MWDOC); South Coast Water District (SCWD); Laguna Beach County Water District (LBCWD), Moulton Niguel Water District (MNWD); and the City of San Clemente (CSC), and Appropriation of Funds" — Item No. D15. If you have specific thoughts or concerns regarding this item, you are encouraged to participate in this decision making process. You can communicate with the City Council through correspondence addressed to the Council and/or by attending the meeting and speaking to the Council during the public meeting. Correspondence related to this item must be received at the City Clerk's office by 5:00 p.m. on Monday, August 4, 2008 to allow time for the Council to consider its content. If you would like to speak at the meeting, please complete a yellow "Request to Speak" form found inside the entrance to the Council Chamber. This form is turned in at the staff table, just in front of the Council dais. You will be called to speak by the Mayor when the item is considered. You have received this notice at the request of the City staff member Eric P. Bauman, Water Engineering Manager. You may contact that staff member at (949) 487-4312 with any questions. The agenda, including agenda reports, is available to you on our web site: www.san'uancapistrano.org. If you would like to subscribe to receive a notice when agendas are posted to the web site, please make that request by sending an e-mail to: cit clerk san'uanca istrano.or . Meg Monahan, MMC City Clerk cc: South Coast Water District; Moulton Niguel Water District; Laguna Beach County Water District; Laguna Beach County Water District, Municipal Water District of Orange County; City of San Clemente; John G. O'Donnell, Utility Director, Eric P. the Past to Enhance the Future Printed on 100% recycled paper 32400 PASEO AOELANTO SAN JUAN CAPISTRANO, CA 92675 (949) 493-1171 `- (949) 493-1053 FAx WWW.sanjuaiicapistrano.org 1776 August 12, 2008 NOTIFICATION OF ACTION BY THE CITY COUNCIL OF SAN JUAN CAPISTRANO MEMBERS OF THE CITY COUNCIL SAM ALLEVATO THOMAS W. HRISAR MARK NIELSEN JOE $OTO DR. LONDRES USO On August 5, 2008, the City Council of San Juan Capistrano met regarding: "Consideration of the Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinization Plant - Municipal Water District of Orange County (MWDOC); South Coast Water District (SCWD); Laguna Beach County Water District (LBCWD), Moulton Niguel Water District (MNWD); and the City of San Clemente (CSC), and Appropriation of Funds" Item No. D15. The following action was taken at the meeting: Final Conformed Agency Participation Agreement to Explore the Feasibility of an Ocean Desalinazation Plant with Municipal Water District of Orange County, South Coast Water District, Laguna Beach County Water District, Moulton Niguel Water District, and the City of San Clemente Approved; $40,000 of the $236,000 Project Allocation to be Returned. to the Capital Reserve Fund; and the City Manager, Authorized to Execute the Final Version of the Agreement Substantially in Conformance with the Draft Agreement. If you have any questions regarding this action, please contact Eric P. Bauman, Water Engineering Manager at (949) 487-4312 for more detailed information. Thank you, M9g Monah n, MMC CAv Clerk Cc: South Coast Water District; Moulton Niguel Water District; Laguna Beach County Water District; Laguna Beach County Water District; Municipal Water District of Orange County; City of San Clemente; John G. O'Donnell, Utility Director; Eric P. Bauman, Water Engineering Manager San ,Juan Capistrano: Preserving the Past to Enhance the Future Printed on 100% recycled paper