Draft Term Sheet Released for Castroville Community Services District Purchase of Desalinated Water from California American Water Company

On January 12, 2016, California American Water Company (“Cal-Am”), Castroville Community Services District (“CCSD”) and stakeholder groups released a draft term sheet for desalination project return water.

The transaction grew out of concern for the sustainability of the Salinas River Groundwater Basin. Because the basin is overdrafted, the stakeholder groups, which include the Salinas Valley Water Coalition, Monterey County Farm Bureau, LandWatch Monterey County and the Monterey Peninsula Regional Water Authority, are concerned with protecting the Salinas River Groundwater Basin from salt water intrusion. Cal-Am intends to use a slant well intake system in its proposed Monterey Peninsula Water Supply Project desalination project, which would draw a portion of the water supply from the Salinas River Groundwater Basin.

Under the terms released, Cal-Am would offset its draw from the basin by delivering a portion of the water produced by the desalination project to groundwater users in the basin. The return water obligation will be calculated according to a methodology that is currently being reviewed by the parties.  But selling water from the project to CCSD would count towards satisfaction of the obligation.

CCSD provides municipal and domestic water service for the Town of Castroville, pumping approximately 800 AF/year. Any water purchased from Cal-Am would be used in lieu of pumping.

Cal-Am’s desalination project will have either a 9.6 mgd capacity or a 6.4 mgd capacity, depending whether water is available to Cal-Am from a groundwater replenishment project being pursued by the Monterey Regional Water Pollution Control Agency and the Monterey Peninsula Water Management District.  Cal-Am would sell to CCSD 690 AF/year if the smaller desalination project is constructed or 800 AF/year if the larger project is constructed. The price would be $110/AF and is based on the avoided cost to produce groundwater. Additional water purchased by CCSD would be priced at $580/AF, which reflects the desalination project operation and maintenance costs.

To take delivery, CCSD will construct a $4-million, three-mile pipeline to connect to Cal-Am’s water supply project.

Additional deliveries toward the return water obligation may go to the Castroville Seawater Intrusion Project (“CSIP”), which provides recycled water and surface water in lieu of groundwater pumping for agricultural use in the Castroville area. The price that CSIP would pay has not been specified, but terms indicate that it would reflect the marginal avoided cost for producing recycled water.

It is anticipated that the term sheet would become effective near the end of this year, after the Final Environmental Impact Report is certified and other approvals are secured. Once effective, it will have a 30-year term, and parties to the agreement will have a right of first refusal for any new agreements.

Representatives from the stakeholder groups believe the terms achieve their objective.

“From day one we have been adamant that any export of groundwater from the Salinas River Groundwater Basin to the Peninsula would violate the Monterey County Water Resources Agency Act,” said Salinas Valley Water Coalition President Nancy Isakson. “The terms laid out in this planning document would ensure that all groundwater from the Salinas River Groundwater Basin is returned to the basin, and I believe, will ensure potential harm to the Salinas River Groundwater Basin water right holders is avoided.”


Written by Marta L. Weismann