Read "Improving the Wastewater Reclamation Plant/System for Del Monte Forest" (below)

Read the section of the PBCSD September 24, 2004 Board Meeting Minutes item entitled "Reclamation Management Committee Meeting/Expanded Project Financing" (below)

Improving the Wastewater Reclamation Plant/System for Del Monte Forest October, 2004 Summary Background History The Reclamation Plant/System is owned and operated by the Carmel Area Wastewater District (CAWD) and the Pebble Beach Community Services District (PBCSD). The Pebble Beach Company provided financial guarantees necessary to finance the $33.9 million cost to construct the publicly owned and operated wastewater reclamation project back in 1992. At that time the Monterey Peninsula Water Management District (MPWMD) approved the plan whereby the PB Co. , in exchange for the financial guarantee, received a water right of 365 acre feet of Cal-Am water (the "Water Entitlement"). The primary users of this reclaimed water include Del Monte Forest Golf Course owners. They are known as "Independent Reclaimed Water Users Group (IRWUG), and include: Cypress Point Golf Club, Monterey Peninsula Country Club, and Poppy Hills Golf Course. The recycled wastewater is piped from the Carmel treatment plant, near Highway 1 to users in the Forest This Group has been working with the owners of the Plant/System and Pebble Beach Co. since 1992 when the first Agreements for the sale of reclaimed water were executed.. Supply and Quality of Reclaimed Water Not Acceptable Reclaimed water has been delivered to the Users Group since 1994. However, this water has not meet the contractual obligations with regard to quantity and quality of the water. The design capacity of the project was for 800 acre feet per year. The actual yearly average of reclaimed water production from 1994 through 2003 was 670 acre feet, requiring an average of 280 acre feet of potable water to be used to meet the total needs of 950 acre feet. High salt content in the recycle water has been damaging to the golf courses and the supply has been inconsistent. The Pebble Beach Co. and Users Group have been working with the owners of the Plant/System on ways to improve the supply and quality of the water. A Phase II Improvement plan was developed which involves additional treatment facilities, (state-of-the-art micro filtration and reverse osmosis system at the Carmel treatment plant) to remove excess salts. This improvement includes the renovation of the existing empty Forest Lake Reservoir (located off Lopez Road) for additional storage of 425 acre feet of recycled water when it is not required by the Users Group for the golf courses. This project improvement plan has been estimated to cost approximately $22 million A new MPWMD Ordinance, No. 109, adopted on May 27, 2004 allows the PB Co. to finance the cost of the Phase II Improvement plan by selling a portion of their Water Entitlement to interested Del Monte Forest property owners. Read details of the Ordinance on the Monterey Peninsula Water Management District website, www.mpwmd.dst.ca.us New Agreements have been developed by the Users Group, PB Co. and MPWMD with new terms and conditions covering the sale (or purchase) of reclaimed water. David A. Berger, General Manager of the MPWMD, recently advised us that during their November meeting the District Board of Directors will be reviewing the new agreements required to implement the recently approved Ordinance 109. Status of Financing Improvements Mark Stilwell, Ex. VP. PB Co. indicated in September that they are cautiously optimistic on the sale of their "entitled" water. Forest property owners are responding to their offer. The Company had reached 25% of their goal last month. Mr. Stilwell also stated that when 110 acre-feet of the subscriptions have been secured, the property owners will then have 30 days to pay for the water. To learn more about the progress of the financing you may visit the PBCSD website. www.pbcsd.org and review the future minutes of the PBCSD Board of Directors meetings as they will continue to cover this important project.

PBCSD BOARD OF DIRECTORS Regular Meeting of September 24, 2004 MINUTES Reclamation Management Committee Meeting/Expanded Project Financing Mr. Andrews reported orally on the Reclamation Management Committee meeting held on September 10, 2004. The major topic was the expanded reclamation project financing. Mr. Stillwell also commented on the meeting, indicating that he had reported to the Committee that letters and subscription information concerning the sale of water rights to finance the expanded project had been mailed to residents. He said the mailing company inadvertently omitted sending along the checklist for completing the subscription form; however in Mr. Stilwell's opinion the letter and summary included was descriptive enough for most of the recipients to understand the subscription procedure. As of September 10th, he stated that $5.0 million in acre-feet ("AF") of water rights had been subscribed and that he is receiving approximately 30 inquiry calls per day. He expressed the belief that more property owners would subscribe later, as some interested parties indicated they had retained counsel to look into subscribing. Monterey Peninsula Water Management District ("MPWMD") is receiving calls as well. To put the acre-footage in perspective, Mr. Andrews pointed out that 1/10 AF provides water for 2 standard bathrooms or one very large bathroom. Mr. Stillwell stated that PBCo is cautiously optimistic regarding the water sales, as they are 25% to the goal. When 110 AF of subscriptions have been secured, the escrow phase will begin and subscribers will then have 30 days to pay. Then, PBCo will respond to the MPWMD with a formal financing commitment.