Ayes: Anthony, Barr, Dewane, Green, Flory, Sheldon, Sidhu Noes: Barr (No. 8) Absent: Bilodeau, Sarmiento, Yoh

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1 MINUTES OF MEETING BOARD OF DIRECTORS, ORANGE COUNTY WATER DISTRICT October 1, 2014, 5:30 p.m. President Dewane called to order the October 1, 2014 regular meeting of the Orange County Water District Board of Directors at 5:30 p.m. in the Boardroom at the District office. Following the Pledge of Allegiance to the Flag, the Secretary called the roll and reported a quorum as follows. Directors Philip Anthony Kathryn Barr Denis Bilodeau (arrived 5:46 p.m.) Shawn Dewane Jan Flory Cathy Green V incent Sarmiento (arrived 5:36 p.m.) Stephen Sheldon Harry Sidhu Roger Yoh (arrived 6:40 p.m.) Staff Michael Markus, General Manager Joel Kuperberg, General Counsel Janice Durant, District Secretary Gina Ayala, Stephanie Dosier, Randy Fick, Roy Herndon, Don Jackson, John Kennedy, Audrey Perry, Eleanor Torres, Greg Woodside, Nira Y amachika Others: Peer Swan, Paul Weghorst - Irvine Ranch Water District Ric Collett, Steve Conklin, Marc Marcantonio - Yorba Linda Water District Nabil Saba - City of Santa Ana David Moore - Clean Energy Capital Keith Lyon - Municipal Water District of Orange County John Earl - Surf City Voice Don Calkins - City of Anaheim Jose Diaz - City of Orange Graham Beatty, Andy Kingman, Mark Maloni - Poseidon Water Brian Ragland - City of Huntington Beach Alison Goldenberg - Huntington Beach Ken Vecchiarelli - Golden State Water Company Paul Shoenberger - Mesa Water District Robin Mareario - Garden Grove resident Besty Eglash - Brady Nancy Agostini - Huntington Beach resident VISITOR PARTICIPATION Public comments were received during discussion of Item No. 9, Clean Energy Capital Financial Report. CONSENT CALENDAR The Consent Calendar was approved upon motion by Director Green, seconded by Director Anthony and carried [7-0] as follows, with Director Barr voting "No" on Item No. 8, Draft Letter of Support for Anaheim Canyon Specific Plan. Ayes: Anthony, Barr, Dewane, Green, Flory, Sheldon, Sidhu Noes: Barr (No. 8) Absent: Bilodeau, Sarmiento, Yoh

2 1. Approval of Cash Disbursements MOTION NO APPROVING CASH DISBURSEMENTS Payment of bills for the period September 11, 2014 through September 24, 2014 in the total amount of $6,925, is ratified and approved. 2. Approval of Minutes of Board Meeting MOTION NO APPROVING MINUTES OF BOARD MEETINGS The minutes of the Board of Directors meeting held September 3, 2014 are approved as presented. CONSENT CALENDAR ITEMS RECOMMENDED FOR APPROVAL AT WATER ISSUES COMMITTEE MEETING HELD SEPTEMBER Resolution Commending MWDOC Director Wayne Clark RESOLUTION NO COMMEMORATING THE RETIREMENT OF WAYNE CLARK FROM THE MUNICIPAL WATER DISTRICT OF ORANGE COUNTY WHEREAS, Wayne A. Clark was first elected to the Municipal Water District of Orange County (MWDOC) Board of Directors in 1979 to serve the constituents of Newport Beach, portions of Irvine, Lake Forest and Laguna Woods. Director Clark has since served in this capacity for consecutive terms from 1979 to He served as President of the MWDOC Board of Directors several times during his tenure; and WHEREAS, Director Clark is a native of California and long-time resident of Orange County and courageously served in the U.S. Army during World War II. He earned a bachelor s degree in economics from the University of California, Berkeley and attended Hastings College of Law in San Francisco; and WHEREAS, Director Clark was an early member of the Orange County Press Club; was a writer and columnist for several newspapers, including the Los Angeles Times; and became the first Public Information Officer for the University of California, Irvine. He also later became President and Owner of a public relations consulting firm; and WHEREAS, Director Clark is dedicated to serving the public. He was Executive Assistant to a member of the Orange County Board of Supervisors and, among several other campaigns, he managed a successful state-wide bond issue campaign that financed the start-up of the University of California, Irvine and several other campuses of higher education. He helped form the Irvine Unified School District and served as a Charter Chairman of the Irvine City Planning Commission; and 2

3 WHEREAS, Director Clark served in a number of leadership roles within the water industry, including Director of the Irvine Ranch Water District from 1977 to He was its first elected Director to serve as President. He also founded and served as Executive Director of the Urban Water Institute, a nonprofit corporation devoted to providing information on the economics and management of water resources. Now retired from the Institute, he currently serves on its board of directors. He also presently represents the Association of California Water Agencies (ACWA) as Elected Alternate to the board of the National Water Resources Association; and WHEREAS, Director Clark was a strong supporter of the Orange County Water District and coordinating the operation of the groundwater basin with the availability of imported water supplies to improve the overall water reliability of the area; and NOW, THEREFORE, let it be resolved that the Board of Directors of the Orange County Water District does hereby officially commend and congratulate Wayne A. Clark on his dedication and successful leadership at the Municipal Water District of Orange County for 35 years. It is with great appreciation and admiration that the Board wishes him well in his retirement and much continued success in his future endeavors. o Approval of Job Classification Addition MOTION NO AUTHORIZING CREATION OF NEW ENVIRONMENTAL TECHNICIAN CLASSIFICATION The following job classification and salary grade modification are hereby approved: Environmental Technician job classification within the Water Quality Department at a salary grade R Amendment to Agreement with Northwest Habitat Institute for Prado Basin Feasibility Study RESOLUTION NO APPROVING AMENDMENT TO AGREEMENT WITH NORTHWEST HABITAT INSTITUTE FOR HABITAT ASSESSMENT AND MODELING FOR PRADO BASIN FEASIBILITY STUDY WHEREAS, pursuant to Resolution No adopted May 22, 2013, OCWD approved Agreement No with Northwest Habitat Institute to conduct habitat assessment and modeling for the Prado Basin Feasibility Study for an amount not to exceed $185,000; and WHEREAS, the District staff has presented and recommended approval of Amendment No. 1 to such Agreement with Northwest Habitat Institute providing for additional tasks for habitat assessment and modeling for the Prado Basin Feasibility Study for an amount not to exceed $29,500, bringing the total agreement to an amount not to exceed $214,500;

4 NOW, THEREFORE, the Board of Directors of the Orange County Water District does hereby approve the aforementioned Amendment to the Agreement with Northwest Habitat Institute as described herein; and upon approval as to form by District General Counsel, its execution by the District officers is authorized CONSENT CALENDAR ITEMS RECOMMENDED FOR APPROVAL AT PROPERTY MANAGEMENT COMMITTEE MEETING HELD SEPTEMBER Amendment to Lease Agreement with Corona Recreation, Inc. 10/01/14 RESOLUTION NO APPROVING AMENDMENT TO LEASE AGREEMENT WITH CORONA RECREATION, INC. FOR OPERATIONS AT WARNER BASIN AND ANAHEIM LAKE WHEREAS, pursuant to Resolution No adopted September 20, 2006, as modified, OCWD approved a lease with Corona Recreation for operation of a fishing concession at Warner Basin and Anaheim Lake for a 10-year term through September 30, 2016; and WHEREAS, the Property Management Committee of this Board has presented and recommended approval of Amendment No. 3 to such Lease Agreement with Corona Recreation, Inc. under the terms and conditions as presented in the staff report dated September 26, 2014; NOW, THEREFORE, the Board of Directors of the Orange County Water District does hereby approve the aforementioned Amendment No. 3 to such Lease Agreement with Corona Recreation; and, upon approval as to form by District General Counsel, its execution by the General Manager is authorized. Request by Yorba Linda Water District for Conceptual Approval for Proposed Water Well at Huckleberry Pond MOTION NO CONCEPTUALLY APPROVING REQUEST FROM YORBA LINDA WATER DISTRICT FOR PROPOSED WATER WELL AT HUCKLEBERRY POND Conceptual approval is hereby granted for a Yorba Linda Water District well site and pipeline easement for its proposed Well No. 22; and staff is directed to negotiate the lease terms and conditions and return to Committee for final review and approval. 8. Draft Letter of Support for Anaheim Canyon Specific Plan MOTION NO APPROVING DRAFT LETTER OF SUPPORT FOR THE ANAHEIM CANYON SPECIFIC PLAN Staff is directed to transmit a letter to the City of Anaheim regarding zoning changes to District properties within the Anaheim Canyon Specific Plan (ACSP), indicating that the District is supportive of the changes with the condition that the City include language in the ACSP and the City s General Plan that specifically states that the Open Space/Water zoning and Water land use designation would allow various non-water development uses by right or by Conditional Use Permit 4

5 (CUP) without changing the Specific Plan or the General Plan; and that the District opposes the City taking any credit for the OCWD open space land proposed in the ACSP. [No: Barr] Director Sarmiento arrived at 5:36 p.m. and Director Bilodeau arrived at 5:46 p.m. during the public comments portion of tonight s meeting. INFORMATIONAL ITEMS Clean Energy Capital Financial Report - Proposed Poseidon Resources City of Huntington Beach Ocean Desalination Project VISITOR PARTICIPATION: South Orange County Economic Coalition (SOCEC) representative Wayne Brown advised that the SOCEC views the Huntington Beach desalination project as a countywide water reliability project that will benefit all of Orange County. He stated the SOCEC believes the Clean Energy Capital Report confirms that the desalination project is a worthwhile and cost effective investment and on behalf of the County, urged the Board to negotiate a water purchase agreement. Surf City Voice representative John Earl proposed the following questions with regard to the Clean Energy study: 1) What conclusions are different in this study from the previous white paper prepared by OCWD or any other similar reports prepared in the last 12 years; 2) OCWD pays 593/af for MWD untreated water so why was $970/af used to compare the cost with Poseidon water; 3) The current study assumes that MWD s water increases will be either 3% or 6%, but MWD s water has been increasing at 1.5%.; 4) From what source, if any, was the data taken for the Monte Carlo study; and 5) Now that this study is completed will OCWD commence with the Citizen s Advisory Committee in a transparent manner and a format that gives equal respect and footing to the regular, non-corporate non-consultant citizen constituents, including those that are skeptical of the Poseidon project. Sarah Nordstren played a short television clip that aired this week on The Weather Chanel showing the need for desalination in California. Fullerton resident Bryce Stoermer thanked the Board for considering the Huntington Beach Desalination Project and making it a high priority for OCWD, noting the county needs solutions such as desalination for the drought. OC Taxpayers Association (OC Tax) President and CEO Carolyn Cavecche stated that OC Tax supports the desalination project and the public/private partnership that this project brings forward, especially since Poseidon will be assuming all the financial responsibility for the permitting, financing, construction and operation of the project. She stated this approach is good for keeping the County ratepayers from the financial risk while guaranteeing a high quality product. Ms. Cavecche stated OC Tax is supportive of staff s recommendation that the community provide comments before November. Poseidon Water representative Scott Maloni provided an update on the project, noting that the independent panel of technical experts issued a draft last week of its first report which looked at the technical feasibility of a subsurface intake system which concluded that all

6 subsurface intake technologies are technically infeasible at the project site with the exception of the seaport galleries which could be built in the surf zone or several thousand feet off shore. During phase 2, he stated the Panel will expand its feasibility evaluation beyond just technical feasibility and to the full Coastal Act definition of feasibility which means can it be built in a successful manner and a reasonable period of time taking into account technical, environmental, social, and economic considerations. Mr. Maloni stated Poseidon expects to be back before the Commission the first half of next year. He also advised that the State Water Board s proposed desalination policy is being revised and recirculated publicly and Poseidon expects the State Water Board to take action before the end of the year, noting that the policy provides an avenue for Poseidon to use existing intake and outfall technology to operate the plant. In conclusion, he stated Poseidon believes the Clean Energy report successfully achieves the Board s objective of verifying the project cost and evaluating potential cost saving measures, and validates Poseidon s proposed approach, and the public partnership approach shows that water can be produced and delivered at a net cost of $1,396/af when taking into account the MWD Local Resources Program. Clean Energy Capital Managing Director David Moore presented the conclusions and key findings of its Financial Analysis of the Proposed Huntington Beach Ocean Water Desalination Project contained in tonight s Agenda packet as follows: Poseidon has proposed a core risk allocation pursuant to which the District will only pay for desalinated water that is actually produced and delivered. Poseidon will have essentially all risks related to permitting, site conditions, design and construction, startup, operations and maintenance, operating performance, and availability and repayment of financing. This risk allocation is comparable to the risk allocation adopted between Poseidon and the San Diego County Water Authority in the Carlsbad Desalination Project. Poseidon provided figures, estimates and financing plan appear reasonable. The project s 2014 unit cost as estimated by Poseidon is $1,871/acre-foot. This project unit cost could initially be reduced by up to $340/acre-foot, or even further to $475/acre-foot, depending upon the receipt of a Metropolitan Water District (MWD) Local Resources Program (LRP) subsidy and the level of support provided thereby. If the District purchased the Poseidon water, sold it to interested Producers, and received a $340/acre-foot MWD LRP subsidy, the Replenishment Assessment (RA) would need to increase by approximately $96/acre-foot in The RA is currently $294/acre-foot. The following results were obtained using a Monte Carlo probability distribution program. This technique is discussed in the report and involves specifying probability distributions for key cost drivers rather than specific values. The simulation process then randomly selects specific values for the key drivers, calculates and records the results, and repeats the process over and over again. O p10 = $1,791/acre-foot (this indicates there is a 10% chance the project unit cost would be less than this amount) o p50 = $1,922/acre-foot (this is the median estimated unit cost) o p90 = $2,088/acre-foot (this indicates there is a 90% chance the project unit cost would be less than this amount) Starting with the p50 estimated unit cost of $1,922/acre-foot, the unit cost of the proposed project could become less expensive than MWD water around the year 2036 assuming Tier I MWD rates increase at an average annual rate of 6% and a MWD LRP subsidy of $340/acrefeet is received. If MWD rates increase at an average annual rate of 3%, the cost of the project may never be less than MWD during the 30-year forecast period. 6

7 Poseidon proposes to fund 82% of the project with private activity bonds and the remaining 18% with private equity. Alternative options are available for the District to use its high credit rating to fund some portion of the project to achieve overall savings of up to $471/acrefoot. These options; (1) Fundamentally change the proposed relationship and risks distribution between the District and Poseidon; (2) Could more than double the amount of existing long-term debt the District currently has outstanding depending upon the option selected; (3) Could impact the District s credit ratings going forward; and (4) Would need to be carefully considered and negotiated. Mr. Moore stated that Modifications to the Metropolitan Water District Local Resources Program MWD LRP will be considered at its October 14, 2014 Board meeting, and he reviewed the changes being considered. Executive Director John Kennedy stated that staff would request comments by interested agencies and individuals on the draft CEC report, discuss the report with the Groundwater Producers at their upcoming meetings, and include this issue on the November Board agenda to determine future District action. He noted an update on other project issues such as the Coastal Commission process, State Board Ocean Plan Amendment, and other items would also be provided at this time. IRWD Director Peer Swan stressed that the proposed project has not received much support from the water retailers in the County. He stated the comparison used in the study between the MWD treated water rate and the Poseidon rate is inaccurate as OCWD pays $593/af for the untreated rate for water. Mr. Swan noted it is unlikely there would ever be a crossover given the nature of MWD s long-term energy contracts. He stated that according to the report, the Orange County water community would be asked to pay essentially $31.5 million per year in order to build insurance into the system that OCWD might not get allocated water. In prior meetings Mr. Swan stated he has recommended the Board look at the probability and duration of any kind of outages before evaluating projects. Mr. Swan stressed that IRWD s policy has been clearly communicated to OCWD that they do not want to pay costs over and above the MWD price for water. He urged the Board to pay attention to the details behind the report which he finds quite faulty. In conclusion, he noted that desalination plants in Spain and Australia are being shut down due to the high cost of water and the availability of other water, and requested that staff evaluate alternative projects after they determine what the frequency and duration of any kind of shortages might be. Director Yoh arrived at 6:40 p.m. during the following Director comments regarding this item. Director Green asked what the desalinated water would do to the MWD allocation and Mr. Kennedy responded that OCWD would get less water from MWD but would be better off overall with the project. Director Green then suggested a workshop be scheduled with the Groundwater Producers and the Board. Director Sheldon suggested an organized presentation for concerned parties to discuss fiscal and environmental issues and to have public participation. The Board requested that the Clean Energy Report be placed on the OCWD website under "Desalination." The Board asked that consideration of the future direction of the project be deferred to a date when all Directors could be present.

8 10. COMMITTEE REPORTS 10/01/14 The Board reported on attendance at the September 26 Property Management Committee meeting and noted the Action Agenda was included in tonight s Board packet. l 1. VERBAL REPORTS General Manager Markus advised that OCWD will be awarded the government leadership award by LAFCO on October 16 at the CALAFCO conference in Ontario. Director Bilodeau announced that he and Diane Pinnick gave a presentation at the City of Tustin Water Symposium on September 30. ADJOURNMENT TO CLOSED SESSION The Board adjourned to Closed Session at 7:00 p.m. as follows: CONFERENCE WITH LEGAL COUNSEL - EXISTING LITIGATION [Paragraph (1) of subdivision (d) of Section ]: Three (3) Cases 1) OCWD v. Unocal Corporation, et al (MTBE Litigation) Superior Court Case No. 03CC ) OCWD v. Northrop Corporation, et al (North Basin VOC Litigation) Superior Court Case No. 04CC ) OCWD v. Sabic Innovative Plastics, LLC, et al (South Basin Litigation) Superior Court Case No. 03CC CONFERENCE WITH LABOR NEGOTIATORS [Government Code Section ] OCWD designated representative: District President Shawn Dewane Non-Represented Employee: General Manager RECONVENE IN OPEN SESSION The Board reconvened in Open Session at 8:00 p.m. whereupon General Counsel Kuperberg announced that the Board by a vote of [9-1], with Director Sheldon voting "No," authorized the following settlement. RESOLUTION NO. CS ) APPROVING AMENDMENT TO THE PREVIOUSLY APPROVED SETTLEMENT AGREEMENT WITH TEXTRON IN THE CASE OF OCWD V. SABICINNO VA TIVE PLASTICS LLC (SOUTH BASIN LITIGATION) THAT INCLUDES APPROVAL OF A RETAINER AGREEMENT WITH THE LAW FIRM OF MILLER AXLINE IN THE EVENT THAT OCWD DETERMINES TO INITIATE LITIGATION ON TEXTRON S ASSIGNED CLAIMS; AND 2) APPROVING COMPENSATION TO THE LAW FIRM OF MILLER AXLINE ON THE BENEFITS RECEIVED BY THE DISTRICT UNDER THE MODIFIED TEXTRON SETTLEMENT Ayes: Noes: Anthony, Barr, Bilodeau, Dewane, Flory, Green, Sarmiento, Sidhu, Yoh Sheldon

9 ADJOURNMENT There being no further business to come before the Board, the meeting was adjourned at 8:00 p.m. ice Durant, District Secretary Shawn I)ewanj,