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CC 2020-08-11_10a Central Coast Blue Cost Sharing MOA FrameworkMEMORANDUM TO: CITY COUNCIL FROM: BILL ROBESON, ACTING CITY MANAGER SUBJECT: CONSIDERATION OF APPROVAL OF THE CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT FRAMEWORK (MOA FRAMEWORK) DATE: AUGUST 11, 2020 SUMMARY OF ACTION: Review, discuss and consider approval of the Central Coast Blue Cost Sharing Memorandum of Agreement Framework (MOA Framework) Version 4. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: There is no immediate fiscal impact from the actions described above. However, there is a significant financial impact for the overall cost of the Central Coast Blue project as shared previously with the Council. The June 9, 2020 staff report provides further context on this cost information. (Attachment 2). RECOMMENDATION: It is recommended the City Council review and approve the revised (Version 4) Central Coast Blue Cost Sharing Memorandum of Agreement Framework. BACKGROUND: At the June 9, 2020 City Council meeting, Water Systems Consulting (WSC), presented information regarding the Central Coast Blue Cost Sharing Memorandum of Agreement Framework (MOA Framework). Based on input provided by the City Council at that meeting and collaboration between Arroyo Grande, Grover Beach, Pismo Beach and South San Luis Obispo County Sanitation District (SSLOCSD) staff and representative elected officials, a fourth version of the MOA Framework was developed (Attachment 1). Version 4 includes redline changes to highlight modifications from the version that was presented at the June 9, 2020 City Council Meeting and comments explaining the intent of the changes. A summary of the changes is outlined in the table below: Item 10.a. - Page 1 CITY COUNCIL CONSIDERATION OF APPROVAL OF THE CENTRAL COAST BLUE FOR COST SHARING MEMORANDUM OF AGREEMENT FRAMEWORK (MOA FRAMEWORK). AUGUST 11, 2020 PAGE 2 Version 4 MOA Framework Modifications: Comment/Input Section Modified/Added MOA Framework Modification Framework/Term Sheet Concept Section 1 The term “Framework” was added to clarify that this document is intended as framework document for a MOA not the actual MOA. Additional language was added to describe that the MOA Framework is not legally binding, but the basis for developing the MOA. Editorial Corrections Section 2.f Minor editorial corrections made to correctly identify funding agencies for previously complete studies SSLOCSD Contributions Sections 3.e.iii and 8.c.ii Modified language to reflect current negotiation status with SSLOCSD regarding Construction cost sharing. Governance Structure Section 4.a.v Additional opt-out clause related to developing a mutually agreeable governance/ownership structure Opt-out provisions Sections 4.b and 4.c Additional clarification language regarding cost obligations if an agency utilizes an opt- out clause Over-pumping Restrictions Section 7.a Addition of a penalty charge for over pumping, except during emergency conditions Unsubscribed Water Purveyor Contribution Percentage Section 8.a.ii Additional clarification regarding what happens if another agency is not identified for the Unsubscribed 5% Water Purveyor Contribution Percentage Pre-Construction Cost Share Reimbursement Section 8.b.i Modification to starting point for the Pre- Construction Cost Share Reimbursement to the first contract based on the current vision for the project Land Purchase Costs Section 8.b.i Removal of land purchase costs from the Pre- Construction Cost Sharing to avoid issues regarding shared property ownership Contract/Change Order Approval Requirements Section 8.b.iv.1 Modifications to provide specificity regarding contract approval authority and cost control for each Contributing Water Purveyor SSLOCSD Pre- Construction Contributions Section 8.b.v Modifications to clarify distribution of SSLOCSD pre-construction contribution credits to its Contributing Water Purveyor Member Agencies Initiation of Construction Cost Accounting Section 8.c.i Clarification regarding starting point of Construction Cost accounting and cost sharing Buy-In Costs Section 8.f.i Modification to “buy-in” cost calculations Item 10.a. - Page 2 CITY COUNCIL CONSIDERATION OF APPROVAL OF THE CENTRAL COAST BLUE FOR COST SHARING MEMORANDUM OF AGREEMENT FRAMEWORK (MOA FRAMEWORK). AUGUST 11, 2020 PAGE 3 If approved by the Arroyo Grande City Council, the next steps for the Cities of Arroyo Grande, Grover Beach and Pismo Beach for the MOA and Central Coast Blue will be to:  Prepare a draft of the formal MOA for review and approval by the Cities of Arroyo Grande, Grover Beach and Pismo Beach o The respective City Attorneys from each agency will collaborate in drafting the MOA o The preparation of the MOA will include involvement by an attorney specializing in water infrastructure projects of this nature o The City of Arroyo Grande will not be delegating the final approval of the MOA to the City Manager. If acceptable, the City Council will review and approve the document and authorize the Mayor to sign the final MOA.  Develop Cost Share Agreements between Pismo and Arroyo Grande/Grover Beach to fund the next phase (Permitting and Final Design) of Central Coast Blue, which will come back to the City Council for review and approval. This will allos critical project components to advance in order to best position Central Coast Blue for grant and low interest financing to reduce project costs.  Update of the 2002 Management Agreement and governance/ownership structure for the Central Coast Blue for incorporation into the MOA  Continue negotiation with SSLOCSD regarding potential participation in the cost sharing for Central Coast Blue ANALYSIS OF ISSUES: Central Coast Blue is a regional recycled water project that will purify wastewater and inject it into the groundwater basin in order to protect the basin against seawater intrusion and to provide a reliable supplemental water supply for the participating agencies. Phase I of the project will treat and inject wastewater produced by the City of Pismo Beach WWTP at a potential advanced treatment facility location in Grover Beach. If additional supplemental water is needed by the participating agencies or other nearby uses such as farming, an additional phase would allow the project to purify and inject wastewater from the South San Luis Obispo County Sanitation District’s WWTP, creating additional available groundwater supply and further reducing treated wastewater discharges to the ocean. ALTERNATIVES: The following alternatives are provided for the Council's consideration: 1. Approve the Central Coast Blue Cost Sharing MOA Framework Version 4; 2. Do not approve the Central Coast Blue Cost Sharing MOA Framework Version 4; 3. Provide input and direction on requested modifications to the MOA Framework or approve the MOA Framework and provide input and direction on requested modifications to be included in the MOA; or 4. Provide other direction to staff. Item 10.a. - Page 3 CITY COUNCIL CONSIDERATION OF APPROVAL OF THE CENTRAL COAST BLUE FOR COST SHARING MEMORANDUM OF AGREEMENT FRAMEWORK (MOA FRAMEWORK). AUGUST 11, 2020 PAGE 4 ADVANTAGES: This MOA Framework provides an intermediate and nonbinding step in the process as we move towards a Central Coast Blue MOA. The MOA Framework is a critical initial step to position Central Coast Blue for grant and/or low-interest financing opportunities to significantly reduce the cost of the project. DISADVANTAGES: None. ENVIRONMENTAL REVIEW: No environmental review is required for the proposed action. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. Attachment: 1. Central Coast Blue Cost Sharing Memorandum of Agreement Framework v.4 2. June 9, 2020 staff report Item 10.a. - Page 4 Cost Sharing MOA Framework_v4 Central Coast Blue 8/5/2020 1. Purpose a. The purpose of this Memorandum of Agreement Framework (MOA Framework) is to identify and agree upon the groundwater pumping and cost sharing frameworks for Central Coast Blue, Phase 1 (PROJECT). The MOA Framework is non‐binding but is intended to be the basis for the MOA. 2. Background a. The Northern Cities Management Area (NCMA) agencies have worked collaboratively to manage groundwater pumping in their portion of the Santa Maria Groundwater Basin (SMGB) since development of the 1983 Gentlemen’s Agreement, which allocated the estimated available groundwater amongst the municipal and agricultural pumpers in the NCMA. b. The Gentlemen’s Agreement was further formalized in the 2002 Agreement Regarding Management of the Arroyo Grande Groundwater Basin (Management Agreement) and incorporated into the SMGB Adjudication in the 2005 Stipulation. The NCMA Municipal Pumping Allocations from the Management Agreement are outlined in Table 1. Table 1. NCMA Municipal Pumping Allocations NCMA Agencies Groundwater Allocation (AFY) Ag Conversion Credits (AFY) Current Groundwater Allocation (AFY) Fraction of Groundwater Allocation Arroyo Grande 1,202 121 1,323 0.31 Grover Beach 1,198 209 1,407 0.32 OCSD 900 900 0.21 Pismo Beach 700 700 0.16 Total 4,000 330 4,330 1.00 c. Seawater intrusion was identified as a threat to SMGB in the 1960s and was one of the driving factors for the construction of Lopez Dam and connection to the State Water Project. d. Evidence of seawater intrusion was detected in 2009 in NCMA Sentry Well 32S/13E‐ 30N02 and the Oceano Blue Well (32S/13E‐31H11). e. In response to the detection of seawater intrusion, the NCMA agencies dramatically reduced their groundwater pumping and began investigating supplemental supply opportunities to improve water supply reliability and groundwater protection. f. Through numerous supplemental supply alternative studies, outlined below, the PROJECT was identified as the preferred alternative for protecting NCMA groundwater and improving water supply reliability for the region. Item 10.a. - Page 5 i. 2008 South San Luis Obispo County Sanitation District (SSLOCSD) Desalination Feasibility Study – prepared by Arroyo Grande, Grover Beach and Oceano Community Services District (OCSD) ii. 2012 Lopez Spillway Raise Project Report – Zone 3 Agencies iii. 2014 Regional Recycled Water Strategic Plan – San Luis Obispo County Flood Control and Water Conservation District iv. 2015 Recycled Water Facilities Planning Study – Pismo Beach v. 2017 Recycled Water Facilities Planning Study ‐ South San Luis Obispo County Sanitation District/Arroyo Grande g. The effluent from the Pismo Beach and SSLOCSD Wastewater Treatment Plants (WWTP) was identified as a significant water supply source that could be put to beneficial use. h. There continues to be legislative and regulatory pressure to limit ocean outfall discharges that could impact the Pismo Beach and SSLOCSD WWTPs disposal operations. 3. Central Coast Blue Overview a. Central Coast Blue is a regional, multi‐phase groundwater protection project that will allow beneficial use of water currently discharged to the ocean as a seawater intrusion barrier. i. Phase 1 – advanced treatment and injection of Pismo Beach WWTP flows a. The “PROJECT” refers to Phase 1 ii. Phase 2 – add SSLOCSD WWTP flows for additional injection or delivery to agricultural users b. Key Project Components i. Treated wastewater conveyance infrastructure ii. Advanced treatment facility (ATF) iii. Recycled water distribution infrastructure iv. Injection wells v. Monitoring wells vi. Potential new extraction wells c. Values and Benefits i. Provides protection from seawater intrusion ii. Improves groundwater basin quality iii. Reduces ocean discharge of treated wastewater effluent iv. Provides a new, local, sustainable water supply v. Offsets demand for State Water Project and Lopez Reservoir surface water supplies d. Participating Agencies i. NCMA Agencies a. City of Arroyo Grande (Arroyo Grande) b. City of Grover Beach (Grover Beach) c. Oceano Community Services District (OCSD) d. City of Pismo Beach (Pismo Beach) ii. South San Luis County Sanitation District (SSLOCSD) e. Contributing Agencies i. Three Contributing Water Purveyors have financially committed to implementing PROJECT: Arroyo Grande, Grover Beach, and Pismo Beach. ii. OCSD has chosen not to contribute funds to the PROJECT. Item 10.a. - Page 6 iii. SSLOCSD is in discussions with the Contributing Water Purveyors regarding funding Construction Costs associated with expanding specific components of the PROJECT to support the implementation of Phase 2. 4. PROJECT/Agreement Coordination a. Contributing Water Purveyors shall have the opportunity to opt‐out of the Cost Sharing MOA at the following key PROJECT Milestones: i. Selection determination for Round 3 Prop 1 Groundwater Grant Program Grant Funding by State Water Resources Control Board ii. Submittal of Final Design PROJECT cost estimates iii. Determination of Prop 218 rate increase approval iv. Approval of the updated 2002 Management Agreement v. Formation of a mutually agreeable governance/ownership structure b. If a Contributing Water Purveyor exercises an opt‐out clause during the pre‐construction phase (i.e. prior to award of the Construction Contract for the first bid package for the PROJECT), the opting out Water Purveyor shall be responsible for their Cost Share Percentage for project costs to date and any currently outstanding contracts. c. If a Contributing Water Purveyor exercises an opt‐out clause during the construction phase (i.e. after to award of the Construction Contract for the first bid package for the PROJECT), the opting out Water Purveyor shall be responsible for repayment of the capital costs for the construction of the PROJECT. 5. Groundwater Management without PROJECT a. To protect the groundwater basin from seawater intrusion, the NCMA Agencies agree to manage municipal pumping sustainably to prevent seawater intrusion from occurring in the NCMA. b. The quantity of NCMA groundwater the NCMA Agencies can pump on an annual basis without inducing seawater intrusion or causing other undesirable effects shall be identified based on the methodology outlined in the 2020 update to the 2002 Management Agreement and termed the “Basin Municipal Yield”. c. The Basin Municipal Yield shall be divided amongst the NCMA agencies based on their groundwater allocation percentages, see Table 1. d. Prior to the implementation of PROJECT, the NCMA agencies shall agree to limit their groundwater pumping to the Basin Municipal Yield as identified in the Management Agreement. 6. Groundwater Management with PROJECT a. The NCMA Agencies shall include in the 2020 update of the Management Agreement a methodology for estimating the amount of additional groundwater that the NCMA Municipal Agencies can pump, associated with the implementation of PROJECT, without inducing seawater intrusion or causing other undesirable effects. This additional groundwater shall be termed the “PROJECT Yield”. b. The PROJECT Yield shall be allocated based on Water Purveyor Contribution Percentages, which is based on their percentage cost share to PROJECT, see Cost Share Terms section below. c. The Contributing Water Purveyors will be able to pump their portion of the PROJECT Yield, in addition to their portion of the Basin Municipal Yield. 7. Excessive Groundwater Pumping a. The updated Management Agreement will contain provisions to address any scenario where a NCMA Agency pumps more than their agreed upon portion of the Basin Municipal Yield in a given year. These provisions will require the NCMA Agency that Item 10.a. - Page 7 pumps an amount greater than their Basin Municipal Yield to reimburse the other NCMA Agencies for the cost of replacement water, including a penalty charge, to provide a further disincentive for over pumping. The agreement shall have provisions that allow for pumping in excess of their agreed upon portion of the Basin Municipal Yield without a penalty under emergency conditions. These Replacement Water payments shall be distributed to the NCMA Agencies proportionally based on the NCMA Municipal Pumping Allocation percentages. b. If a Contributing Water Purveyor pumps more than their agreed upon portion of the Basin Municipal Yield and PROJECT Yield in any given year, then they will reimburse the other Contributing Water Purveyors for the cost of Replacement Water. The Replacement Water Cost shall be distributed to the other Contributing Water Purveyors proportionally based on the other Water Purveyor Contribution Percentages. c. The Replacement Water Cost shall be equivalent to the unit cost for PROJECT water, which shall be calculated as the capital repayments, variable and operations and maintenance costs divided by the PROJECT yield for that year. d. If a Contributing Water Agency reduces their pumping in response to another agency pumping more than their Basin Municipal Yield or PROJECT Yield, then the agency that reduced pumping shall receive the Replacement Water Cost directly proportional to the volume of groundwater that they pumped below their Basin Municipal Yield or PROJECT Yield allocation. 8. Cost Sharing Terms a. PROJECT Yield Cost Sharing i. The PROJECT Yield shall be allocated to the Contributing Water Purveyors based on their percentage of the cost share for PROJECT. The Water Purveyor Contribution Percentage is based on a negotiated cost share arrangement, see Table 2. Table 2. PROJECT Water Purveyor Contribution Percentages PROJECT Contributing Water Purveyors Cost Share Percentage Arroyo Grande 39% Grover Beach 36% Pismo Beach 20% Unsubscribed 5% Total 100% ii. Until a Contributing Water Purveyor is identified for the Unsubscribed portion the existing Contributing Water Purveyors shall split the Unsubscribed portion evenly, see Table 3. If an additional Contributing Water Purveyor is not identified or one of the existing Contributing Water Purveyors does not agree to purchase the Unsubscribed cost share before the construction phase, the existing Contributing Water Purveyors will split the unsubscribed portion evenly. Item 10.a. - Page 8 Table 3. PROJECT Water Purveyor Contribution Percentages with Unsubscribed Apportioned Evenly PROJECT Contributing Water Purveyors Cost Share Percentage Arroyo Grande 40.7% Grover Beach 37.7% Pismo Beach 21.7% Total 100% b. Pre‐Construction Costs i. PROJECT Pre‐Construction Costs are those costs paid by each Contributing Water Purveyor starting with the 2017 Regional Groundwater Sustainability Program contract through award of the first construction contract for the full‐ scale PROJECT implementation. ii. To‐date, Pismo Beach has funded most pre‐construction costs. To reconcile pre‐ construction cost allocation in line with Water Purveyor Contribution Percentages, Arroyo Grande and Grover Beach shall split (Arroyo Grande 50%, Grover Beach 50%) the remaining pre‐construction costs, if funding is available, until the cumulative contributions approximately match the Water Purveyor Contribution Percentages. A more specific reimbursement agreement will be developed. iii. Once pre‐construction cost contributions approximate Water Purveyor Contribution Percentages, the remaining pre‐construction costs will be split at the Water Purveyor Contribution Percentages. iv. Reimbursement Structure 1. Pismo Beach will manage primary contracts for PROJECT pre‐ construction activities. Pismo Beach will enter into cost share agreements with Arroyo Grande and Grover Beach for reimbursement of their portions of the pre‐construction costs. Included in the cost share agreements would be cost estimates for each phase of the project. If project costs don’t exceed the estimated amount for each phase additional Council Approval is not required. Included in the cost estimates for each phase would be a 20% Contingency to allow for additional flexibility for contract management. Change orders/amendments that exceed 20% of the original contract value and more than $100,000 would require approval by the Contributing Water Purveyor Governing Boards. v. Any current or future SSLOCSD Contributions to pre‐construction costs shall be credited toward its Contributing Water Purveyor Member Agencies’ (i.e. Arroyo Grande, Grover Beach) contributions proportionally to their revenue contribution to SSLOCSD. c. Construction Cost Sharing i. PROJECT construction costs are those costs that start with the award of the Construction Contract for the first bid package for the PROJECT through determination of construction Substantial Completion. ii. PROJECT construction cost sharing may be split between the SSLOCSD and the Contributing Water Purveyors according to the methodology outlined below, subject to SSLOCSD Board and District Ratepayer approval. Item 10.a. - Page 9 a. SSLOCSD will make its treated effluent available for beneficial reuse during Phase 2, less any volumes found necessary to maintain operations and de‐sedimentation of the ocean outfall. b. SSLOCSD will continue to maintain and operate the ocean outfall to facilitate PROJECT brine disposal. c. SSLOCSD will provide utility costs associated with delivering the SSLOCSD treated effluent to the PROJECT facility. d. SSLOCSD may share in contributions to the incremental capital costs identified in Phase 1 to expand CONVEYANCE AND INFLUENT facilities necessary to accommodate Central Coast Blue Phase 2 in the future, when waiting to expand capacity until Phase 2 would require substantial rework. e. The Contributing Water Purveyors will negotiate with SSLOCSD to determine an appropriate framework for calculating the Phase 2 incremental shared CONVEYANCE and INFLUENT infrastructure costs. f. SSLOCSD will NOT make contributions toward Design or Permitting Pre‐ Construction Costs or Construction Costs associated with the following infrastructure, including but not limited to, Membrane Filtration, Reverse Osmosis, UV/Advanced Oxidation, Advanced Purified Water Pipelines and Injection Wells. iii. Contributing Water Purveyor Contributions a. The Contributing Water Purveyors will pay for the remaining Construction Costs, after the SSLOCSD Contribution, based on the Water Purveyor Contribution Percentages. d. Operations Cost Sharing i. PROJECT Operations Costs are those costs that start after determination of Substantial Completion of PROJECT construction. ii. PROJECT Operations Cost sharing will be split between the Contributing Water Purveyors based on Water Purveyor Contribution Percentages. e. Legal Costs i. Contributing Water Purveyors shall split any legal costs related to the design, construction and operation of the PROJECT according to the Water Purveyor Contribution Percentages. f. Buy‐in Costs i. Buy‐in Agencies that want to “buy‐in” to the project after project construction, shall be responsible for paying an equivalent cost to the Contributing Water Purveyors, including Pre‐Construction and Construction costs, to participate in the project. Equivalent costs shall account for the costs and when those costs were paid by the Contributing Water Purveyors and the value of the infrastructure at the time of purchase. ii. The Buy‐in costs shall be negotiated between the Contributing Water Agencies and the Buy‐in Agency. g. Grant Funding i. Grant funds obtained to offset PROJECT pre‐construction or construction costs will be applied to reduce the total cost of the project. The Contributing Water Agencies will then split the remaining project costs based on the Water Purveyor Contribution Percentages. 9. Cost Sharing Modifications Item 10.a. - Page 10 a. Changes to cost sharing of pre‐construction, construction, and operations costs may be re‐considered if OCSD, SSLOCSD or any of the Contributing Water Purveyors negotiate a different costs and benefit sharing ratio or methodology. PROJECT Yield and/or benefits would be re‐visited accordingly. b. In the event that legislative or regulatory requirements require the diversion of water from the Pismo Beach/SSLOCSD outfall, this cost sharing agreement will be re‐evaluated to establish equity between the cost contributions and the benefit received, including but not limited to accounting for the value of wastewater provided to the project, the value of the benefit received by the wastewater agency through reduced outfall wastewater discharges and other potential benefits agencies receive from the PROJECT. 10. Additional Terms (To be developed as part of the MOA) Item 10.a. - Page 11 ATTACHMENT 1 Item 10.a. - Page 12 Cost Sharin g M OA Framework vi4 Central Coast Blue 8/5/2020 l. Purpose a. The purpose of this Memorandum of Agreement Fram ework (MOA Framework) is to identify and agree upon the groundwater pumping and cost sharing frameworks for Central Coast Blue, Phase 1 (PROJECT). The MOA Framework is non-bindin g but is intended to be the basis for the MOA. 2. Background a. The Northern Cities Management Area (NCMA) agencies have worked collaboratively to manage groundwater pumping in their portion of the Santa Maria Groundwater Basin (SMGB) since development of the 1933 Gentlemen's Agreement, which allocated the estimated available groundwater amongst the municipal and agric;ultural pumpers in the NCMA. b. The Gentlemen's Agreement was further formalized in the 2002 Agreement Regarding Management of the Arroyo Grande Groundwater Basin (Management Agreement) and incorporated into the SMGB AdjudJcation in the 2005Stipulation. The NCMA Municipal Pumping Allocations from the Management Agreement are outlined in Table Hable 1. Table 1. NCMA Municipal Pumping Allocations NCMA Agencies Groundwater Ag Conversion Current Fraction of Allocation (AFY) Credits (AFY} Groundwater Groundwater Allocation (AFY) Allocation Arroyo Grande 1,202 121 1,323 0.31 Grover 8each 1,198 209 1,407 0.32 OCSD 900 900 0.21 Pismo Beach 700 700 0.16 Total 4,000 330 4,330 1.00 c. Seawater fntrusion was identified as a threat to SMGB in the 1960s and was one of the driving factors for the construction of Lopez Dam and connection to the State Water Project. d. Evidence of seawater intrusion was detected in 2009 in NCMA Sentry Well 32S/13E- 30N02 and the Oceano Blue Well (32S/13E-31H11). e. In response to the detection of seawater intrusion, the NCMA agencies dramatically reduced their groundwater pumping and began investigating supplemental supply opportunities to improve water supply reliability and groundwater protection. f. Through numerous supplemental supply alternative studies, outlined below, the PROJECT was identified as the preferred alternative for protecting NCMA groundwater and improving water supply reliability for the region. Item 10.a. - Page 13 i. 2008 South San Luis Obispo County Sanitation District (SSLOCSD) Desalination Feasibility Study-prepared by Arroyo Grande, Grover Beach and Oceana Community Services District (OCSD) ii. 2012 Lopez Spillway Raise Project Report-NCMA Technical GroupZone 3 Agencies iii. 2014 Regional Recycled Water Strategic Plan -San Luis Obispo County Flood Control and Water Conservation District iv. 2015 Recycled Water Facilities Planning Study-Pismo Beach v. 2017 Recycled Water Facilities Planning Study -South San Luis Obispo County Sanitation District/Arroyo Grande g. The effluent from the Pismo Beach and SSLOCSD Wastewater Treatment Plants (WWTP) was identified as a significant water supply source that could be put to beneficial use. h. There continues to be legislative and regulato.ry pressure to limit ocean outfall discharges that could impact the Pismo Beach and SSLOCSD WWTPs disposal operations. 3. Central Coast Blue Overview a. Central Coast Blue is a regional, muiti-phase groundwater protection project that will allow beneficial use of water currently discharged to the ocean as a seawater intrusion barrier. i. Phase 1-advanced treatment and injection of Pismo Beach WWTP flows a. The "PROJECT'' refers to Phase 1 ii. Phase 2 -add SSLOCSD WWTP flows for additional injection or delivery to agricultural users b. Key Project Components i. Treated wastewater conveyance infrastructure ii. Advanced treatment facmty (ATF) iii. Recycled water distributiora infrastructure iv. lnje.cti'on welts v. MonitoriAg wetls vi. Potential new extraction wells c. Values and E3enefits i. Provides protection from seawater intrusion ii. Improves groundwater basin quality iii. Reduces ocean discharge of treated wastewater effluent iv. Provides a new, local, sustainable water supply v. Offsets demand for State Water Project and Lopez Reservoir surface water supplies d. Participating Agencies i. NCMA Agencies a. City of Arroyo Grande (Arroyo Grande) b. City of Grover Beach (Grover Beach) c. Oceana Community Services District {OCSD) d. City of Pismo Beach (Pismo Beach) ii. South San Luis County Sanitation District (SSLOCSD) e. Contributing Agencies i. Three Contributing Water Purveyors have financially committed to implementing PROJECT: Arroyo Grande, Grover Beach, and Pismo Beach. ii. OCSD has chosen not to contribute funds to the PROJECT. Item 10.a. - Page 14 iii. SSLOCSD has committeel tob in discussions with the Contributing Water Purve yors re garding funding Construction Costs associated with expanding specific components of the PROJECT to support the implementation of Phase 2. 4. PROJECT/Agreement Coordination a. Contributing Water Purveyors shall have the opportunity to opt-out of the Cost Sharing MOA at the following key PROJECT Milestones: i. Selection determination for Round 3 Prop 1 Groundwater Grant Program Grant Funding by State Water Resources Control Board ii. Submittal of Final Design PROJECT cost estimates 111. Determination of Prop 218 rate increase approval ~Approval of the updated 2002 Managemem Agreement v. Formation of a mutually agreeable governance/ownershi p structure b. If a Contributin g Water Purve yor exercises an o pt-out clause during the pre-construction phase (i.e. prior to award of the Construction Contract for the first bid packa ge for the PROJECT ). the o pting out Water Purve yor shall be res ponsible for their Cost Share Percenta ge for p ro ject costs to date and an y currentl y outstanding contracts. a-.-c. If a Contributin g Water Purve y or exercises an o pt-out clause during the construction p hase (i.e. after to award of the Construction Contract for the first bid packa ge for the PROJECT ). the o pting out Water Purve yor shall be resp onsible for re payment of the ca pital costs for the construction of the PROJECT. 5. Groundwater Management without PROJECT a. To protect the groundwater basjn from seawater intrusion, the NCMA Agencies agree to manage municipal pumping sustainably to prevent seawater intrusion from occurring in the NCMA. b. The quantity of NCMA groundwater the NCMA Agencies ean pump on an annual basis witho.ut inducing seawater intrusion or causing otcher undesirable effects shall be identified based on the methodology outlined in the 2020 update to the 2002 Management Agreement and termed the "Basin Municipal Yield". c. The Basin MunicipaJ Yield shall be divideci amongst the NCMA agencies based on their groundwater allocation percentages, see Table 1Tal31e 1 . d. Prior to the implementation of PROJECT, the NCMA agencies shall agree to limit their groundwater pumping to the Basin Municipal Yield as identified in the Management Agreement. 6. Groundwater Management with PROJECT a. The NCMA Agencies shall include in the 2020 update of the Management Agreement a methodology for estimating the amount of additional groundwater that the NCMA MunicipaJ Agencies can pump, associated with the implementation of PROJECT, without inducing seawater intrusion or causing other undesirable effects. This additional groundwater shall be termed the "PROJECT Yield". b. The PROJECT Yield shall be allocated based on Water Purveyor Contribution Percentages, which is based on their percentage cost share to PROJECT, see Cost Share Terms section below. c. The Contributing Water Purveyors will be able to pump their portion of the PROJECT Yield, in addition to their portion of the Basin Municipal Yield. 7. Excessive Groundwater Pumping a. The updated Management Agreement will contain provisions to address any scenario where a NCMA Agency pumps more than their agreed upon portion of the Basin Municipal Yield in a given year. These provisions will require the NCMA Agency that Item 10.a. - Page 15 pumps an amount greater than their Basin Municipal Yield to reimburse the other NCMA Agencies for the cost of replacement water, including a penalty char ge, to provide a further disincentive for over pum pin g. The agreement shall have provisions that allow for pum pin g in excess of their agreed up on portion of the Basin Municip al Yield without a penal ty under emergenc y conditions. These Replacement Water payments shall be distributed to the NCMA Agencies proportionally based on the NCMA Municipal Pumping Allocation percentages. b. If a Contributing Water Purveyor pumps more than their agreed upon portion of the Basin Municipal Yield and PROJECT Yield in any given year, then they will reimburse the other Contributing Water Purveyors for the cost of Replacement Water. The Replacement Water Cost shall be distributed to the other Contributing Water Purveyors proportionally based on the other Water Purveyor Contribution Percentages. c. The Replacement Water Cost shall be equivalent to the unit cost for PROJECT water, which shall be calculated as the capital repayments, variable and operations and maintenance costs divided by the PROJECT yield for that year. d. If a Contributing Water Agency reduces their pumping in response to another agency pumping more than their Basin MunJeipal Yield or PROJECT Yield, then the agency that reduced pumping shall receive the R,~placement Water Cost directly proportional to the volume of groundwater that they pumped below the ir Basin Munietpa,I Yield or PROJECT Yield allocation. 8. Cost Sharing Terms a. PROJECT Yield Cost Sharing i. The PROJECT Yield shall be atfocated to the Contributing Water Purveyors based on their percentage of the cost share for PROJECT. The Water Purveyor Contributien Percentage ~s based on a negotiated cost share arrangement, see Table 2. Table 2 . PROJECT Water Purveyor Contribution Percentages PROJECT Contributing Water Cost Share Purveyors Percentage Arroyo Gran(fe 39% Grover Beach 36% Pismo Beach 20% Unsubscribed 5% Total 100% ii. Until a Co;ntributing Water Purveyor is identified for the Unsubscribed portion the existing Contributing Water Purveyors shall split the Unsubscribed portion evenly, see Table 3. If an additional Contributin g Water Purve y or is not identified or one of the existing Contributin g Water Purve yors does not ag ree to p urchase the Unsubscribed cost share before the construction p hase , the existin g Contributing Water Purve yors will split the unsubscribed portion evenly . Item 10.a. - Page 16 Table 3. PROJECT Water Purveyor Contribution Percentages with Unsubscribed Apportioned Evenly PROJECT Contributing Water Cost Share Purveyors Percentage Arroyo Grande 40.7% Grover Beach 37.7% Pismo Beach 21.7% Total 100% b. Pre-Construction Costs i. PROJECT Pre-Construction Costs are those costs paid by each Contributing Water Purveyor starting with the 201ZS Pismo Beach Re gional Groundwater Sustainabilit y Pro gram contract Recycled '.t\'ater l=acilities Planning St1:1dy through award of the first construction contract, incl1:1de land p1:1rchases to s1:1pport the PROJECT, for the full-scale PROJECT hnplementation. ii. To-date, Pismo Beach has funded most pre -construction costs. To reconcile pre- construction cost allocation ~n line with Water Purveyor Contribution Percentages, Arroyo Grande and Grover Beach shall spliqArroyo Grande 50%, Grover Beach 50%) the remaining fi)re-a>nstruction costs, iffunding is available, until the cumu1ative contributions a:pproximately match the Water Purveyor Contribution Percentages. A more specific reimbursement agreement will be developed. iii. Once pre-construction cost contributions approximate Water Purveyor Contribution Percentag-es, the remaini ng pre-construction costs will be split at the Water Purveyor Contribution Percentages. iv. Reimbursement Structure 1. Pismo Beach will manage primary contracts for PROJECT pre- construction activities. Pismo Beach will enter into cost share agreements wfth Arroyo Grande and Grover Beach for reimbursement of their portions offhe pre-construction costs. Included in the cost share ag reements would be cost estimates for each phase of the p ro ject. If pro ject costs don't exceed the estimated amount for each p hase additional Council App roval is not re q uired. Included in the cost estimates for each phase would be a 20% Contin gency to allow for additional flexibility for contract mana gement. Chan ge orders/amendments that exceed 20% of the original contract value and more than $100,000 would re q uire app roval by the Contributin g Water Purveyor Governing Boards. v . Any current or future SSLOCSD Contributions to pre-construction costs shall be credited toward its Contributing Water Purve y or Member Agencies' (i.e. Arroyo Grande, Grover Beach and OCSD ) contributions proportionally to their revenue contribution to SSLOCSD. c. Construction Cost Sharing i. PROJECT construction costs are those costs that start with the award of the Construction Contract for the first bid p acka g e for the PROJECT-fifst constrnction contract for the PROJECT _through determination of construction Substantial Completion. Item 10.a. - Page 17 ii. PROJECT construction cost sharin g ma y be split between the SSLOCSD and the Contributing Water Purve yors according to the methodology outlined below, sub ject to SSLOCSD Board and District Rate payer app roval. a. SSLOCSD will make its treated effluent available for beneficial reuse during Phase 2, less an y volumes found necessa ry to maintain o perations and de-sedimentation of the ocean outfall. b. SSLOCSD will continue to maintain and o p erate the ocean outfall to facilitate PROJECT brine dis posal. c. SSLOCSD will p rovide utility costs associated with delivering the SSLOCSD treated effluent to the PROJECT facility . d. SSLOCSD ma y share in contributions to the incremental ca pital costs identified in Phase 1 to ex pand CONVEYANCE AND INFLUENT facilities necessa ry to accommodate Central Coast Blue Phase 2 in the future , when waiting to ex pand ca pacity until Phase 2 would re quire substantial rework. e. The Contributing Water Purve yors will ne gotiate with SSLOCSD to determine an app ro p riate framework for calculatin g the Phase 2 incremental shared CONVEYANCE and INFLUENT infrastructure costs. f. SSLOCSD will NOT make contributions toward Des ign or Permitting Pre- Construction Costs or Construction Costs associated with the followin g infrastructure . including but not limited to. Membrane Filtration , Reverse Osmosis. UV /Advanced Oxidation . Advanced Purified Water Pi pelines and In jection Wells. ii. PR0:1€6+ construction cost sAaring ·.viii be split between tAe SSLOCSD and the Contributing }.'\later Purve 11ors according to tAe methodology outlined below. a. SSLOCSD Contributions a. To pro1Jide for the opportunity to di1Jert 1Nater from its ocean discAarge in the future, SSLOCSD will contribute to tAe incrernental capital costs to e><pand PROJ~CT facilities necessary to accommodate Central Coast Blue Phase 2 in the future. b. The framework for calculating the Phase 2 incremental costs will be de1Jeloped through collaboration bet\•.«een SSLOCSD and the Centributing Water Purveyors. iii. Contributing Water Purveyor Contributions a. The Contributing Water Purveyors will pay for the remaining Construction Costs, after the SSLOCSD Contribution, based on the Water Purveyor Contribution Percentages. d. Operations Cost Sharing i. PROJECT Operations Costs are those costs that start after determination of Substantial Completion of PROJECT construction. ii. PROJECT Operations Cost sharing will be split between the Contributing Water Purveyors based on Water Purveyor Contribution Percentages. e. Legal Costs i. Contributing Water Purveyors shall split any legal costs related to the design, construction and operation of the PROJECT according to the Water Purveyor Contribution Percentages. f . Buy-in Costs Item 10.a. - Page 18 i. Buy-in Agencies that want to "buy-in" to the project after project construction, shall be responsible for paying an equivalent cost to the Contributing Water Purveyors , including Pre-Construction and Construction costs , to participate in the project. Equivalent costs shall account for the costs and when those costs were paid by the Contributing Water Purveyors and the de13reciated value of the infrastructure at the time of purchase. ii. The Buy-in costs shall be negotiated between the Contributing Water Agencies and the Buy-in Agency. g. Grant Funding i. Grant funds obtained to offset PROJECT pre-construction or construction costs will be applied to reduce the total cost of the project. The Contributing Water Agencies will then split the remaining project costs based on the Water Purveyor Contribution Percentages. 9. Cost Sharing Modifications a. Changes to cost sharing of pre-construction, constructiQn, and operations costs may be re-considered if OCSD, SSLOCSD or aRy of the Contributing Water Purveyors negotiate a different costs and benefit sharing ratio or methodology. PROJECT Yield and/or benefits would be re-visited accordingly. b. In the event that legislative or regulatory requirements require the diversion of water from the Pismo Beach/SSLOCSD outfall, this cost sharing agreement Wlll be re-evaluated to establish equity between tile cost contributions and the benefit received, including but not limited to accounting for the value of wast~water provided to the project, the value of the benefit receive,d by the wastewater agency through reduced outfall wastewater discharges and other potential h'enefits agencies receive from the PROJECT . 10. Additional Terms (T o be develo ped as part of the MOA ) MEMORANDUM TO: CITY COUNCIL FROM: BILL ROBESON, ACTING CITY MANAGER SUBJECT: PRESENTATION BY WATER SYSTEMS CONSULTING REGARDING CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT (MOA) FRAMEWORK AND DISCUSS AND PROVIDE DIRECTION REGARDING THE MOA DATE: JUNE 9, 2020 SUMMARY OF ACTION: Receive a presentation and information regarding the Central Coast Blue project from Water Systems Consulting (WSC), review and discuss the Central Coast Blue Cost Sharing Memorandum of Agreement (MOA) framework and provide direction to staff regarding the MOA. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: There is no immediate fiscal impact from the actions described above. However, there is a significant financial impact for the overall cost of the Central Coast Blue project as shared previously with the Council and the following information provides further context on this cost information. The revised MOA framework identifies agency cost shares as shown on Table 1 below with the City’s cost share at 39%. The 5% unsubscribed portion of water may either be purchased by one of the other agencies or by an outside party but for now will be evenly split between the participating agencies. Table 1: Project Cost Sharing Contributing Water Purveyors Cost Share Percentage Adjusted Cost Share Percentage Arroyo Grande 39%40.67% Grover Beach 36%37.67% Pismo Beach 20%21.67% Unsubscribed 5% Total 100%100% The total cost of Central Coast Blue for Phase 1 is estimated to be approximately $41.9 million in pre-construction and construction costs. The construction costs are expected to be amortized through a financing mechanism for an annual debt service cost along with an annual operations and maintenance cost shown below in Table 2: ATTACHMENT 2 Item 10.a. - Page 19 CITY COUNCIL PRESENTATION BY WATER SYSTEMS CONSULTING REGARDING CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT (MOA) FRAMEWORK AND DISCUSS AND PROVIDE DIRECTION REGARDING THE MOACONSIDERATION OF CENTRAL COAST BLUE MEMORANDUM OF AGREEMENT JUNE 9, 2020 PAGE 2 Table 2: CCB Costs and City of Arroyo Grande’s Estimated Share Cost Total Cost Arroyo Grande Share Pre-Construction $6,515,683 $2,541,116 Construction $35,432,845 $13,818,810 Operations and Maintenance (annual) $2,255,500 $879,645 Debt Service (annual) $2,180,000 $850,200 Central Coast Blue has been a project in the City’s approved budget for several years and the City currently has sufficient funding from the Water Availability Fund to cover its share of initial estimated pre-construction costs over this next fiscal year ($730,000). The City commissioned a water and wastewater rate study last year and developed a rate structure to fund the remaining preconstruction and construction costs of Central Coast Blue. The City will have to comply with the Prop 218 notice and public hearing procedures before it can adopt the proposed new water rate structure. The MOA also provides for reimbursement of pre-construction funds paid to date by the City of Pismo Beach as the lead agency. The pre-construction costs include preliminary design work, program management, regulatory agency permitting of the Phase 1 treatment facility, State grant applications, CEQA processing, and final design. To date, Pismo Beach has advanced $1,913,914 for these efforts and received $680,955 in reimbursement from participating agencies (including $144,000 from the City) and other agencies such as the County and the South San Luis Obispo County Sanitation District for specific portions of these pre-construction costs. A separate cost- sharing agreement will be developed between the participating agencies to specify the remaining reimbursement provisions. Table 3 below shows this funding allocation for these pre- construction costs by the three participating agencies with the additional contributions remaining: Table 3: Central Coast Blue Advance Funding Analysis City Adjusted Cost Allocation Preconstruction Costs Contribution to Date Contribution Remaining Arroyo Grande 40.67% $881,948 $144,811 $737,137 Grover Beach 37.67% $816,887 $110,000 $706,887 Pismo Beach 21.67% $469,890 $1,913,914 $(1,444,024) TOTAL 100% $2,168,725 $2,168,725 $4,014,720 is projected to be spent in additional pre-construction costs through FY 2021-22 as part of the total pre-construction cost of $6,515,683. Although the City’s proposed participation is 39%, the MOA framework proposes to split remaining pre- construction costs 50% by the City of Arroyo Grande and 50% by the City of Grover Item 10.a. - Page 20 CITY COUNCIL PRESENTATION BY WATER SYSTEMS CONSULTING REGARDING CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT (MOA) FRAMEWORK AND DISCUSS AND PROVIDE DIRECTION REGARDING THE MOACONSIDERATION OF CENTRAL COAST BLUE MEMORANDUM OF AGREEMENT JUNE 9, 2020 PAGE 3 Beach and, if needed, structure construction financing to compensate the City of Pismo Beach for funds advanced on behalf of the project until each agency’s contributions match the approved cost-sharing allocation. These future pre- construction costs will be funded through the City’s Water Enterprise Fund using existing and future water rate revenues. RECOMMENDATION: It is recommended the City Council review and provide input and direction on the revised Central Coast Blue Cost Sharing Memorandum of Agreement (MOA) framework. BACKGROUND: Central Coast Blue is a regional recycled water project that will purify wastewater and inject it into the groundwater basin in order to protect the basin against seawater intrusion and to provide a reliable supplemental water supply for the participating agencies. Phase I of the project will treat and inject wastewater produced by the City of Pismo Beach WWTP at a potential advanced treatment facility location in Grover Beach. If additional supplemental water is needed by the participating agencies or other nearby uses such as farming, an additional phase would allow the project to purify and inject wastewater from the South San Luis Obispo County Sanitation District’s WWTP, creating additional available groundwater supply. ANALYSIS OF ISSUES: The three contributing agencies (Arroyo Grande, Grover Beach, and Pismo Beach) have drafted the Memorandum of Agreement framework which outlines how costs and benefits for the project will be allocated (Attachment 1). The Oceano Community Services District (OCSD) was participating initially in the development of Central Coast Blue; however, OCSD has recently indicated that it does not need the water produced from the project and does not intend to support the project financially. The South San Luis Obispo County Sanitation District is also a participating agency and has committed to funding Construction Costs associated with project elements necessary to facilitate future implementation of Phase 2. In addition to outlining costs and benefits, the MOA framework indicates how non- participating agencies will manage their groundwater resources without impacting the benefits from Central Coast Blue and provides a way for non-participating agencies to join Central Coast Blue at a later date. This supplemental water will be an important water supply for the City to ensure water sustainability and health of the groundwater basin in future drought conditions. Item 10.a. - Page 21 CITY COUNCIL PRESENTATION BY WATER SYSTEMS CONSULTING REGARDING CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT (MOA) FRAMEWORK AND DISCUSS AND PROVIDE DIRECTION REGARDING THE MOACONSIDERATION OF CENTRAL COAST BLUE MEMORANDUM OF AGREEMENT JUNE 9, 2020 PAGE 4 A draft MOA was presented to the contributing agencies in late 2019 and early 2020 including a January 28, 2020 presentation with the Council. Feedback was received from each of the agencies and the draft MOA was revised accordingly with input from an ad hoc subcommittee. Council Member George, who serves as the City’s representative on regional water initiatives, represented the City on the subcommittee. Council member Paulding has also participated in meetings. Following is a summary of significant revisions to the MOA:  New section 4 – This section will allow Contributing Water Purveyors the opportunity to opt-out of the Cost Sharing MOA at key project milestones such as determination of grant funding and impacts of rate setting processes.  New Section 7 – Better definition of “replacement water cost”.  New Section 8 – Revised the cost share shown in table 3 to reflect the amount of water needed by each agency with the 5% unsubscribed portion of water either purchased by one of the participating agencies or sold to an outside party, however for now it will be evenly split between the participating agencies. This section also added subsection “e” which defines how legal costs shall be shared.  New Section 9 – Added subsection “b” which requires that the cost sharing agreement be re-evaluated in the event of legislative or regulatory requirements which require the diversion of WWTP ocean outfall to establish equity between the cost contributions and the benefit received including but not limited to the value of wastewater provided to the project, value of the benefit received by the wastewater agency through the reduced outfall wastewater discharges and other potential benefits agencies receive from the project. The schedule below identifies the major project milestones and anticipated completion dates. Central Coast Blue Phase 1 ACTIVITY Monitoring Construction Bidding Final Design Regulatory Agency Permitting Land Use Permitting EIR Funding/Financing Preliminary Engineering Program Management Task Name 202 202 202 202 202 202 Item 10.a. - Page 22 Post Construction CITY COUNCIL PRESENTATION BY WATER SYSTEMS CONSULTING REGARDING CENTRAL COAST BLUE COST SHARING MEMORANDUM OF AGREEMENT (MOA) FRAMEWORK AND DISCUSS AND PROVIDE DIRECTION REGARDING THE MOACONSIDERATION OF CENTRAL COAST BLUE MEMORANDUM OF AGREEMENT JUNE 9, 2020 PAGE 5 It is recommended that the Council review, discuss and provide input and direction on the revised Central Coast Blue Cost Sharing Memorandum of Agreement (MOA) framework. It is estimated that a final document will need to be executed within the next three to six months to remain eligible for significant grant funding opportunities as further explained in the Fiscal Impact section. The City of Pismo Beach was awarded a Proposition 1 grant of $2 million and Federal Title XVI grant of $800,000, which represent additional pre-construction revenues and corresponding expenditures for grant applications. The contributing agencies with Pismo Beach as the lead agency are continuing to pursue additional grant funding with a possibility of funding as much as 75% of the construction costs but the project must have approval from participating agencies in the near future to remain eligible to apply for these grants. The Grover Beach City Council considered the MOA framework on June 1, 2020 and the Pismo Beach City Council considered it on June 2, 2020. Both agencies authorized the City Manager to enter into an agreement consistent with the framework of the MOA. ALTERNATIVES: The following alternatives are provided for the Council's consideration: 1. Review and provide input and direction on the revised Central Coast Blue Cost Sharing Memorandum of Agreement (MOA) framework; 2. Review and provide input and direction on the revised Central Coast Blue Cost Sharing Memorandum of Agreement (MOA) framework and direct staff to place the MOA on the June 23, 2020 agenda to consider approval; or 3. Provide other direction to staff. ADVANTAGES: This presentation provides an intermediate step in the process for Council questions and input. DISADVANTAGES: None. ENVIRONMENTAL REVIEW: No environmental review is required for the proposed action. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. Attachment: 1. Draft Central Coast Blue Cost Sharing MOA Item 10.a. - Page 23 Draft Central Coast Blue Cost Sharing MOA Term Sheet_v2 5/28/2020 SUBJECT: CENTRAL COAST BLUE – GROUNDWATER MANAGEMENT & COST SHARING TERMS 1.Purpose a.The purpose of this Memorandum of Agreement (MOA) is to identify and agree upon the groundwater pumping and cost sharing frameworks for Central Coast Blue, Phase 1 (PROJECT). 2.Background a.The Northern Cities Management Area (NCMA) agencies have worked collaboratively to manage groundwater pumping in their portion of the Santa Maria Groundwater Basin (SMGB) since development of the 1983 Gentlemen’s Agreement, which allocated the estimated available groundwater amongst the municipal and agricultural pumpers in the NCMA. b.The Gentlemen’s Agreement was further formalized in the 2002 Agreement Regarding Management of the Arroyo Grande Groundwater Basin (Management Agreement) and incorporated into the SMGB Adjudication in the 2005 Stipulation. The NCMA Municipal Pumping Allocations from the Management Agreement are outlined in Table 1. Table 1. NCMA Municipal Pumping Allocations NCMA Agencies Groundwater Allocation (AFY) Ag Conversion Credits (AFY) Current Groundwater Allocation (AFY) Fraction of Groundwater Allocation Arroyo Grande 1,202 121 1,323 0.31 Grover Beach 1,198 209 1,407 0.32 OCSD 900 900 0.21 Pismo Beach 700 700 0.16 Total 4,000 330 4,330 1.00 c.Seawater intrusion was identified as a threat to SMGB in the 1960s and was one of the driving factors for the construction of Lopez Dam and connection to the State Water Project. d.Evidence of seawater intrusion was detected in 2009 in NCMA Sentry Well 32S/13E- 30N02 and the Oceano Blue Well (32S/13E-31H11). e.In response to the detection of seawater intrusion, the NCMA agencies dramatically reduced their groundwater pumping and began investigating supplemental supply opportunities to improve water supply reliability and groundwater protection. f.Through numerous supplemental supply alternative studies, outlined below, the PROJECT was identified as the preferred alternative for protecting NCMA groundwater and improving water supply reliability for the region. i.2008 South San Luis Obispo County Sanitation District (SSLOCSD) Desalination Feasibility Study – prepared by Arroyo Grande, Grover Beach and Oceano Community Services District (OCSD) ii.2012 Lopez Spillway Raise Project Report – NCMA Technical Group Attachment 1 Item 10.a. - Page 24 iii. 2014 Regional Recycled Water Strategic Plan – San Luis Obispo County Flood Control and Water Conservation District iv. 2015 Recycled Water Facilities Planning Study – Pismo Beach v. 2017 Recycled Water Facilities Planning Study - South San Luis Obispo County Sanitation District g. The effluent from the Pismo Beach and SSLOCSD Wastewater Treatment Plants (WWTP) was identified as a significant water supply source that could be put to beneficial use. h. There continues to be legislative and regulatory pressure to limit ocean outfall discharges that could impact the Pismo Beach and SSLOCSD WWTPs disposal operations. 3. Central Coast Blue Overview a. Central Coast Blue is a regional, multi-phase groundwater protection project that will allow beneficial use of water currently discharged to the ocean as a seawater intrusion barrier. i. Phase 1 – advanced treatment and injection of Pismo Beach WWTP flows a. The “PROJECT” refers to Phase 1 ii. Phase 2 – add SSLOCSD WWTP flows for additional injection or delivery to agricultural users b. Key Project Components i. Treated wastewater conveyance infrastructure ii. Advanced treatment facility (ATF) iii. Recycled water distribution infrastructure iv. Injection wells v. Monitoring wells vi. Potential new extraction wells c. Values and Benefits i. Provides protection from seawater intrusion ii. Improves groundwater basin quality iii. Reduces ocean discharge of treated wastewater effluent iv. Provides a new, local, sustainable water supply v. Offsets demand for State Water Project and Lopez Reservoir surface water supplies d. Participating Agencies i. NCMA Agencies a. City of Arroyo Grande (Arroyo Grande) b. City of Grover Beach (Grover Beach) c. Oceano Community Services District (OCSD) d. City of Pismo Beach (Pismo Beach) ii. South San Luis County Sanitation District (SSLOCSD) e. Contributing Agencies i. Three Contributing Water Purveyors have financially committed to implementing PROJECT: Arroyo Grande, Grover Beach, and Pismo Beach. ii. OCSD has chosen not to contribute funds to the PROJECT. iii. SSLOCSD has committed to funding Construction Costs associated with expanding specific components of the PROJECT to support the implementation of Phase 2. 4. PROJECT/Agreement Coordination Item 10.a. - Page 25 a. Contributing Water Purveyors shall have the opportunity to opt-out of the Cost Sharing MOA at the following key PROJECT Milestones: i. Selection determination for Round 3 Prop 1 Groundwater Grant Program Grant Funding by State Water Resources Control Board ii. Submittal of Final Design PROJECT cost estimates iii. Determination of Prop 218 rate increase approval iv. Approval of the updated 2002 Management Agreement 5. Groundwater Management without PROJECT a. To protect the groundwater basin from seawater intrusion, the NCMA Agencies agree to manage municipal pumping sustainably to prevent seawater intrusion from occurring in the NCMA. b. The quantity of NCMA groundwater the NCMA Agencies can pump on an annual basis without inducing seawater intrusion or causing other undesirable effects shall be identified based on the methodology outlined in the 2020 update to the 2002 Management Agreement and termed the “Basin Municipal Yield”. c. The Basin Municipal Yield shall be divided amongst the NCMA agencies based on their groundwater allocation percentages, see Table 1. d. Prior to the implementation of PROJECT, the NCMA agencies shall agree to limit their groundwater pumping to the Basin Municipal Yield as identified in the Management Agreement. 6. Groundwater Management with PROJECT a. The NCMA Agencies shall include in the 2020 update of the Management Agreement a methodology for estimating the amount of additional groundwater that the NCMA Municipal Agencies can pump, associated with the implementation of PROJECT, without inducing seawater intrusion or causing other undesirable effects. This additional groundwater shall be termed the “PROJECT Yield”. b. The PROJECT Yield shall be allocated based on Water Purveyor Contribution Percentages, which is based on their percentage cost share to PROJECT, see Cost Share Terms section below. c. The Contributing Water Purveyors will be able to pump their portion of the PROJECT Yield, in addition to their portion of the Basin Municipal Yield. 7. Excessive Groundwater Pumping a. The updated Management Agreement will contain provisions to address any scenario where a NCMA Agency pumps more than their agreed upon portion of the Basin Municipal Yield in a given year. These provisions will require the NCMA Agency that pumps an amount greater than their Basin Municipal Yield to reimburse the other NCMA Agencies for the cost of replacement water. These Replacement Water payments shall be distributed to the NCMA Agencies proportionally based on the NCMA Municipal Pumping Allocation percentages. b. If a Contributing Water Purveyor pumps more than their agreed upon portion of the Basin Municipal Yield and PROJECT Yield in any given year, then they will reimburse the other Contributing Water Purveyors for the cost of Replacement Water. The Replacement Water Cost shall be distributed to the other Contributing Water Purveyors proportionally based on the other Water Purveyor Contribution Percentages. c. The Replacement Water Cost shall be equivalent to the unit cost for PROJECT water, which shall be calculated as the capital repayments, variable and operations and maintenance costs divided by the PROJECT yield for that year. Item 10.a. - Page 26 d. If a Contributing Water Agency reduces their pumping in response to another agency pumping more than their Basin Municipal Yield or PROJECT Yield, then the agency that reduced pumping shall receive the Replacement Water Cost directly proportional to the volume of groundwater that they pumped below their Basin Municipal Yield or PROJECT Yield allocation. 8. Cost Sharing Terms a. PROJECT Yield Cost Sharing i. The PROJECT Yield shall be allocated to the Contributing Water Purveyors based on their percentage of the cost share for PROJECT. The Water Purveyor Contribution Percentage is based on a negotiated cost share arrangement, see Table 2. Table 2. PROJECT Water Purveyor Contribution Percentages PROJECT Contributing Water Purveyors Cost Share Percentage Arroyo Grande 39% Grover Beach 36% Pismo Beach 20% Unsubscribed 5% Total 100% ii. Until a Contributing Water Purveyor is identified for the Unsubscribed portion the existing Contributing Water Purveyors shall split the Unsubscribed portion evenly, see Table 3. Table 3. PROJECT Water Purveyor Contribution Percentages with Unsubscribed Apportioned Evenly PROJECT Contributing Water Purveyors Cost Share Percentage Arroyo Grande 40.7% Grover Beach 37.7% Pismo Beach 21.7% Total 100% b. Pre-Construction Costs i. PROJECT Pre-Construction Costs are those costs paid by each Contributing Water Purveyor starting with the 2015 Pismo Beach Recycled Water Facilities Planning Study through award of the first construction contract, include land purchases to support the PROJECT, for the full-scale PROJECT implementation. ii. To-date, Pismo Beach has funded most pre-construction costs. To reconcile pre- construction cost allocation in line with Water Purveyor Contribution Percentages, Arroyo Grande and Grover Beach shall split (Arroyo Grande 50%, Grover Beach 50%) the remaining pre-construction costs, if funding is available, until the cumulative contributions approximately match the Water Purveyor Contribution Percentages. A more specific reimbursement agreement will be developed. Item 10.a. - Page 27 iii. Once pre-construction cost contributions approximate Water Purveyor Contribution Percentages, the remaining pre-construction costs will be split at the Water Purveyor Contribution Percentages. iv. Reimbursement Structure 1. Pismo Beach will manage primary contracts for PROJECT pre- construction activities. Pismo Beach will enter into cost share agreements with Arroyo Grande and Grover Beach for reimbursement of their portions of the pre-construction costs. 2. In the event that the costs funded by Pismo Beach, Arroyo Grande, and Grover Beach do not match the cumulative contributions in the Water Purveyor Contribution Percentages prior to construction, the cities shall structure the construction financing to achieve the contributions in the Water Purveyor Contribution Percentages. ii. Any current or future SSLOCSD Contributions to pre-construction costs shall be credited toward its Member Agencies’ (i.e. Arroyo Grande, Grover Beach and OCSD) contributions proportionally to their revenue contribution to SSLOCSD. c. Construction Cost Sharing i. PROJECT construction costs are those costs that start with the first construction contract for the PROJECT through determination of construction Substantial Completion. ii. PROJECT construction cost sharing will be split between the SSLOCSD and the Contributing Water Purveyors according to the methodology outlined below. a. SSLOCSD Contributions a. To provide for the opportunity to divert water from its ocean discharge in the future, SSLOCSD will contribute to the incremental capital costs to expand PROJECT facilities necessary to accommodate Central Coast Blue Phase 2 in the future. b. The framework for calculating the Phase 2 incremental costs will be developed through collaboration between SSLOCSD and the Contributing Water Purveyors. b. Contributing Water Purveyor Contributions a. The Contributing Water Purveyors will pay for the remaining Construction Costs, after the SSLOCSD Contribution, based on the Water Purveyor Contribution Percentages. d. Operations Cost Sharing i. PROJECT Operations Costs are those costs that start after determination of Substantial Completion of PROJECT construction. ii. PROJECT Operations Cost sharing will be split between the Contributing Water Purveyors based on Water Purveyor Contribution Percentages. e. Legal Costs i. Contributing Water Purveyors shall split any legal costs related to the design, construction and operation of the PROJECT according to the Water Purveyor Contribution Percentages. f. Buy-in Costs i. Buy-in Agencies that want to “buy-in” to the project after project construction, shall be responsible for paying an equivalent cost to the Contributing Water Purveyors to participate in the project. Equivalent costs shall account for the Item 10.a. - Page 28 costs and when those costs were paid by the Contributing Water Purveyors and the depreciated value of the infrastructure at the time of purchase. ii. The Buy-in costs shall be negotiated between the Contributing Water Agencies and the Buy-in Agency. g. Grant Funding i. Grant funds obtained to offset PROJECT pre-construction or construction costs will be applied to reduce the total cost of the project. The Contributing Water Agencies will then split the remaining project costs based on the Water Purveyor Contribution Percentages. 9. Cost Sharing Modifications a. Changes to cost sharing of pre-construction, construction, and operations costs may be re-considered if OCSD, SSLOCSD or any of the Contributing Water Purveyors negotiate a different costs and benefit sharing ratio or methodology. PROJECT Yield and/or benefits would be re-visited accordingly. b. In the event that legislative or regulatory requirements require the diversion of water from the Pismo Beach/SSLOCSD outfall, this cost sharing agreement will be re-evaluated to establish equity between the cost contributions and the benefit received, including but not limited to accounting for the value of wastewater provided to the project, the value of the benefit received by the wastewater agency through reduced outfall wastewater discharges and other potential benefits agencies receive from the PROJECT. Item 10.a. - Page 29 THIS PAGE INTENTIONALLY LEFT BLANK Item 10.a. - Page 30