MINUTES OF SPECIAL MEETING BOARD OF DIRECTORS, ORANGE COUNTY WATER DISTRICT December 10, 2014, 8:00a.m.

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1 MINUTES OF SPECIAL MEETING BOARD OF DIRECTORS, ORANGE COUNTY WATER DISTRICT December 10, 2014, 8:00a.m. President Dewane called to order the December 1 0, 2014 special meeting of the Orange County Water District Board of Directors at 8:00a.m. in the Boardroom at the District office. Following the Pledge of Allegiance to the Flag, the Assistant District Secretary called the roll and reported a quorum as follows. Directors Philip Anthony Denis Bilodeau Shawn Dewane Jan Flory Cathy Green Dina Nguyen Vincent Sarmiento Stephen Sheldon Harry Sidhu Roger Y oh (arrived 8:15 a.m.) (arrived 8:15a.m.) (not in attendance) Staff Michael Markus, General Manager Joel Kuperberg, General Counsel Judy-Rae Karlsen, Assistant District Secretary Gina Ayala, Bruce Dosier, Stephanie Dosier, Randy Fick, Bill Hunt, John Kennedy, Marsha Westropp, Greg Woodside, Nira Yamachika Others: Kelly Rowe- Consultant Francisco Gutierrez- City of Buena Park Rick Erkeneff- South Coast Water District Travis Hopkins, Dave Sullivan- City of Huntington Beach Art Valenzuela- City of Tustin Steve Conklin- Yorba Linda Water District Brian Ragland- City of Huntington Beach Justin McCusker, Don Bunts- Santa Margarita Water District Jose Diaz- City of Orange Renae Hinchey- Laguna Beach Water District Mark Sprague- City of Fountain Valley Keith Lyon, Robert Hunter- Municipal Water District of Orange County Don Calkins, Rick Shintaku - City of Anaheim Scott Miiler- City of Westminster Paul Shoenberger, Phil Lauri -Mesa Water District Paul Cook, Paul Weghorst -Irvine Ranch Water District Ken Vecchiarelli- Golden State Water Company Marc Sema-MNWD Ray Hiemstra- Orange County Coastket:per John Earl- Surf City Voice Scott Malone, Andrew Kuger- Poseidon Resources Marinka Horack, Jean Roberts, Milt Dardis, Susie Smith, Patricia Goodman, James Parkinson, Pat Foster, Margie Powers, Kim Powers, MaryAnn Gordon, Betty Angell, Lena Hayshi, Dave Hamilton, Conner Everts- R4RD Kathy Abler- Ratepayer Cindy Black- Ratepayer Dennis Dopp- Ratepayer Wendy Leece- Ratepayer Lori Ann Robeson - Ratepayer Sue Walls- Resident

2 Mary Jo Baretich- Cabrillo Wetlands Conservancy Thomas Niederhauser- Resident of Huntington Beach Michelle Schomburg- Resident of Huntington Beach Bill Robeson- Resident of Huntington Beach Sarah Gregory- Resident of Huntington Beach Ethan Char lynne- Resident of Huntington Beach Brian Lochrie- Communications LAB David Moore- Clean Energy Capital Michael and Wicotta Wellborn- Friends of Harbors, Beaches, Parks Howard Johnson- Brady Associates Bill Wachell- Talbert HOA Fred Adjarian- Adjarian Consulting Services Eric McHugh, Kevin Wen- UCI students Joe Geever- Surfrider Foundation Vern Nelson Sarah Norelstrand Amy Von Freymann Alison Goldberg Eric McHugh Delia Parker Glenn Howland 12110/14 ANNOUNCEMENT President Dewane read a note from former Director Kathryn Barr expressing her appreciation for the retirement party held prior to the November 19 Board meeting. VISITOR PARTICIPATION Surf City Voice representative John Earl requested that Director Sheldon clarify his business relationship with Poseidon Resources. CONSENT CALENDAR The Consent Calendar was approved upon motion by Director Green, seconded by Director Anthony and carried [7-0] as follows. Ayes: Anthony, Dewane, Flory, Green, Sarmiento, Sheldon, Sidhu Absent: Bilodeau, Nguyen, Yoh 1. Elections to OCWD Board MOTION NO RECEIVING AND FILING CERTIFICATES OF ELECTION The Certificates of the Orange County Registrar of Voters for the November 4, 2014 General Election certifying the election of the following Directors are hereby received and filed: Division 1 Dina L. Nguyen 4-year tenn December through December 7, 2018 Division 5 Steve Sheldon 4-year tenn December 5, 2014 through December 7, 2018 Division 7 Shawn Dewane 4-year tenn December 5, 2014 through December 7,

3 12110/14 2. Agreement Amendment to Layne Christensen for Test Pumping of Bessy Well at Warner Basin RESOLUTION NO AUTHORIZING AMENDMENT TO AGREEMENT WITH LAYNE CHRISTENSEN COMPANY FOR OPERATIONAL PUMP AT BESSY WELL WHEREAS, pursuant to Resolution No. I I 32 adopted October I 5, 20 I 4, OCWD authorized Agreement No with Layne Christensen Company L.P. for test pumping services at Bessy Well located in Warner Basin; and WHEREAS, the District staff has recommended issuance of Amendment No. 1 to such Agreement with Layne Christiansen Company L.P. for an amount not to exceed $21,212 to forgo test pumping activities and proceed with the teardown, inspection, refurbishment and installation of an operational pump at Bessy Well for one-year of water production while Yorba Linda Water District drills a new production well on land provided by OCWD near the Bessy Well; NOW, THEREFORE, the Board of Directors of the Orange County Water District does hereby approve Amendment No. 1 to the Agreement with Layne Christensen Company L.P. as described herein; and, upon approval as to form by District General Counsel, its execution by the District officers is authorized. 3. Amendment to Irvine Lake Use Agreement with Serrano Water District for Quagga Mussel Research Project RESOLUTION NO AUTHORIZING AMENDMENT TO IRVINE LAKE USE AGREEMENT WITH SERRANO WATER DISTRICT FOR QUAGGA MUSSEL RESEARCH PROJECT WHEREAS, pursuant to Resolution No adopted March 19,2014, OCWD authorized the Irvine Lake Use Agreement with Serrano Water District for OCWD access to specified areas of Santiago Reservoir known as Irvine Lake for quagga mussel antifouling research; and WHEREAS, the District staff has recommended approval of Amendment No. 1 to such Agreement extending the contract expiration date to December 31, 2015 for continued research activities; NOW, THEREFORE, the Board of Directors of the Orange County Water District does hereby approve Amendment No. 1 to such Agreement with Serrano Water District as described herein; and, upon approval as to form by District General Counsel, its execution by the District officers is authorized. 3

4 4. Agreement Amendment to Converse Consultants fm Additional Materials Testing and Inspection Services for the GWRS Initial Expansion Project 12/10/14 RESOLUTION NO AUTHORIZING AMENDMENT TO AGREEMENT WITH CONVERSE CONSULTANTS FOR ADDITIONAL MATERIALS TESTING AND INSPECTION SERVICES FOR THE GWRS INITIAL EXPANSION PROJECT WHEREAS, pursuant to Resolution No adopted October 19, 2011, OCWD authorized Agreement No with Converse Consultants for an amount not to exceed $1,052,864 for special inspections, materials testing services and aerial photography during construction of the GWRS Initial Expansion Project; and WHEREAS, the District staffhas recommended approval of Amendment No. 1 to such Agreement with Converse Consultants for an amount not to exceed $73,000 for additional material testing services and specialized inspection services; NOW, THEREFORE, the Board of Directors of the Orange County Water District does hereby approve Amendment No. 1 to the Agreement with Converse Consultants as described herein; and, upon approval as to form by District General Counsel, its execution by the District officers is authorized. 5. Ratification of Public Right-of-Way Encroachment Permits for Continued Access to District- Owned Monitoring Wells RESOLUTION NO RATIFYING RENEWAL OF PUBLIC RIGHT-OF-WAY ENCROACHMENT PERMITS WITH CITY OF ANAHEIM, COUNTY OF ORANGE AND THE CITY OF PLACENTIA FOR ACCESS TO OCWD GROUNDWATER MONITORING WELLS RESOLVED, that renewal of eight public right-of-way encroachment permits with the following Cities/agencies is hereby ratified; 1) City of Anaheim (6 one-year permits), 2) the County of Orange (1 one-year permit), and, 3) the City of Placentia (1 six-month permit) to allow continued access to District-owned groundwater monitoring wells for the purpose of periodic monitoring and maintenance is authorized for a total cost of $1,294.25; and upon approval as to form by District General Counsel, execution by the District officers is authorized. 6. Agreement to Cascade Drilling, L.P. for Destruction/Replacement ofmonitoring Well AM-31a RESOLUTION AUTHORIZING ISSUANCE OF AGREEMENT TO CASCADE DRILLING, L.P. FOR DESTRUCTION/REPLACEMENT OF MONITORING WELL AM-31 A RESOLVED, that issuance of an Agreement is authorized to Cascade Drilling, L.P. for an amount not to exceed $35,183 for the destruction/replacement of monitoring well AM-31 A; and upon approval as to form by District General Counsel, its execution by the District officers is authorized. 4

5 WORKSHOP 12110/14 Directors Bilodeau and Nguyen arrived at 8:15 a.m. during the following discussion. 7. Proposed Poseidon Resources City of Huntington Beach Ocean Desalination Project Workshop- Clean Energy Capital Financial Report Executive Director John Kennedy advised that the "Clean Energy Capital Financial Report" was distributed on October 1, 2014 and eight comment letters were received from the following agencies/organizations: Cities of Anaheim, Fullerton, Huntington Beach, Irvine Ranch Water District, Mesa Water District, Municipal Water District of Orange County, Orange County Coastkeeper, and Residents for Responsible Desalination. Mr. Kennedy reported that District staff responded to each comment letter and a majority of the comments received were about broader issues that went beyond the scope of the financial analysis. Clean Energy Capital (CEC) representative David Moore presented the updated "Clean Energy Capital Financial Report" along with a verbal report on the parameters used in the financial analysis prepared for the District. He reviewed various financial strategies and offered a high level analysis that focused on the accuracy of the estimated unit cost of the water as compared with alternate imported water supplies. Mr. Moore advised the only substantial change in the updated "CEC Financial Report" was an increase in the annual energy escalation rate from 2.0% to 2.5%. He stated the 30 year projection represents a 3% increase for the first 15 years followed by a 2% increase the following 15 years. Director Flory requested clarification of the proposed 18% equity option presented in the report and the corresponding risk sharing option. She also requested that staff provide the District Act guidelines on ownership of equity in such projects. Directors Anthony and Sheldon asked for more information on debt/equity issues that pertain to debt structure, cost of debt, risk and interest rates. Director Bilodeau requested additional information on the Carlsbad/Poseidon Resources relationship. He asked for information on who owns and operates the desalination facility and requested a copy of the water purchase agreement. Director Flory noted that several comment letters raised the issue of the Metropolitan Water District's (MWD) Local Resources Program (LRP) subsidy. She asked if the funding was available from MWD for this project. Municipal Water District of Orange County Assistant General Manager Karl Seckel advised that there is no signed LRP agreement at this time for the Huntington Beach desalination project. He stated that historically MWD water has been available and reliable, but that MWD expects to do cut backs in Director Flory asked ifmwd water is available, why should OCWD consider an expensive desalination project at this time. Mr. Seckel responded it may be a "future reliability" concern should drought conditions continue. Discussion ensued regarding water rationing, future basin production percentages, the impact on the replenishment assessment, the availability and the projected cost for increased power/energy usage, the cost associated with maintaining reliable water supplies and how to detennine the actual value of desalination in various MWD water allocation scenarios. At the conclusion of staff's presentation Mr. Kennedy advised there are many options to discuss if the District decides to work with Poseidon, and if a partnership is developed, the details will be fully vetted, analyzed and discussed. He stated that broader issues such as rate impacts, credit rating implications, risk transfer, project participants, alternative water supply options, institutional 5

6 12/10/14 arrangements and many other issues would be completely defined and analyzed within the parameters of a specific proposal. President Dewane then opened the meeting for public comments. Public Comments Lori Ann Robeson recommended the District wait to hold a workshop on the proposed Desalination Project when the Carlsbad desalination plant is constructed and fully operational. Conner Everts stated he was opposed to the City of Huntington Beach Ocean Desalination Project based on the associated assumptions and costs in the financial analysis. Irvine Ranch Water District (IRWD) representative Paul Cook reported IRWD submitted a 14 page comment letter and does not support the City of Huntington Beach Ocean Desalination Project. He stated that MWD has a history of reliable water supplies and recommended the District consider a fatal flaw analysis for this complex issue that would include the following factors: District Act compliance, Proposition 218 compliance, subsurface intake issues and establishing the need for reliability with Producers. Mr. Cook stated that IRWD is not opposed to ocean desalination; but does not support this project at this time. He requested that OCWD continue to include Groundwater Producers in workshop discussions and any future negotiations with Poseidon. IR WD representative Paul Weghorst discussed issues to consider regarding MWD LRP subsidies and summarized the definition oftreated and untreated MWD water allocations. Huntington Beach City Council member Dave Sullivan stated that he has a history of opposition to Poseidon and that he would oppose pipeline construction that would impact City streets. Amy VonFreyman expressed concerns related to quality oflife issues, environmental impacts, and the political influence ofposeidon. Orange County Coastkeeper representative Ray Hiemstra stated that the feasibility study presents the best possible scenario, but the actual costs will be greater for most residents and commercial water users. University of California Irvine student Eric McHugh stated that he is supportive of desalination as a future renewable resource. University of California Irvine student and Huntington Beach resident Kevin Wen expressed support for desalination as a local renewable resource and reviewed the history of the California drought. Los Alamitos resident Sarah Norelstrand expressed support for the development of GWRS, water recycling, and the development of ocean desalination as a new water supply. R4RD representative Milt Dardis advised there is a primary need in the business community to focus on the customer and expressed concern over the lack of available financial infonnation for Poseidon Resources. Surfrider Foundation representative Joe Geever noted the comments and questions presented by the Groundwater Producers were previously presented by Surfrider Foundation. He asked OCWD staff to 6

7 clarify its authority to partner in this project, and asked why MWDOC made the determination to not negotiate with Poseidon. Alison Goldenberg stated she is not opposed to desalination but would not support a project that was not fiscally sound. She expressed her concerns about the business reputation of Poseidon and the significant number of unanswered questions related to the project. Huntington Beach resident Vern Nelson expressed concerns regarding the cost versus the need for ocean desalination in Orange County. Pat Foster expressed concerns that OCWD is holding meetings and spending time and money to discuss a potential partnership that may never happen since Poseidon does not have a Coastal Commission permit. She encouraged the Board to look into other resources and locations for ocean desalination. Bill Robeson stated his concern about the District's relationship with Poseidon and about Poseidon's business reputation. He urged the Board to wait and watch the outcome of the Carlsbad/Poseidon project. Michael Wellborn stated the District doesn't need to depend upon Poseidon's propriety technology. He expressed his support of the District and stated OCWD already has well trained staff and the technology in reverse osmosis and microfiltration to provide good quality water. Huntington Beach resident Patricia Goodman stated her concerns about the financial disclosures of Directors and the reporting of any and all potential or actual conflicts of interest. Cabrillo Wetlands Conservancy representative Mary Jo Baretich concurred with the concerns presented by the Orange County Coastkeepers. She stated she did not suppc1rt ocean desalination and expressed her concerns about earthquake activity, noise pollution and marine life. Costa Mesa resident Wendy Leece expressed her concerns about Director's disclosures of campaign contributions or donations from Poseidon. She also noted the meeting time was not conducive for a public workshop and ratepayers must be included in the discussion. Glenn Howland stated his concerns about the future of the Poseidon plant and the plans for the retrofit of the intake lines and impacts on marine life. Poseidon representative Scott Maloni stated it has been 18 months since the District voted to approve the financial feasibility study for purchasing the capacity of the desalination plant. He reported it has been a comprehensive, inclusive and transparent process and provides a great benefit for the stakeholders. Director Flory requested a copy of the District's Agreement with Poseidon and more details on the status of the AES power plant decommissioning. She also suggested the Board consider a workshop on the topic of ocean desalination without the component of Poseidon. Mr. Maloni stated the AES cooling water system will be decommissioned in approximately 2020 and AES has received permits form the California Energy Commission and commercial arrangements with Southern California Edison to rebuild their facility not using seawater as part of the electrical generating process. He reported there will be a new power plant built on that site operating for the 7

8 12/10/14 next years. He recommended inviting a member of AES to address specific questions. City of Huntington Beach Director of Public Works Travis Hopkins reported that AES is active and will continue to be operational while it has submitted plans to retool its plant. Director Anthony requested that staff and General Counsel present a list of fatal flaws for the desalination project prior to scheduling additional discussions and workshops on broader issues. Director Dewane thanked the public for their participation in today's workshop and requested that staff develop a timeframe for future workshop topics/discussions. General Manager Mike Markus reported the schedule would be prepared for the December 1 7 Board meeting. VERBAL REPORTS Mr. Markus advised that the Directors have been officially sworn in but that a ceremonial Swearing In Ceremony has been scheduled during the December 17 Board meeting for Dina Nguyen, Steve Sheldon, and Shawn Dewane. ADJOURNMENT There being no further business to come before the Board, the meeting was adjourned at 10:26 a.m. in honor of the recently retired Director Kathryn Barr. ~E. c=-= "~- '{G::' udy-rae Karlsen, Assistant District Secretary Qo 8