News Release
San Diego County Water Authority
News Release: July 22, 2010 |
Contact:
John Liarakos
Office: (858) 522-6703
Cell: (858) 761-2544 |
or
Denise Vedder
Office (858) 522-6709
Cell: (619) 770-8403 |
Water Authority Board Approves Terms and Conditions for Negotiating Carlsbad Desalination Project Water Purchase Agreement
The San Diego County Water Authority Board of Directors today approved key terms for purchasing water from the nation's largest seawater desalination facility in Carlsbad.
Today's action enables Water Authority staff to begin negotiating specific elements for a water purchase agreement with Poseidon Resources, the private firm developing the Carlsbad Desalination Project. These elements include water purchase price, allocation of risk and options to eventually purchase the project's pipeline and the entire desalination plant
Under terms agreed to by Poseidon and the Water Authority, before negotiations begin on a final agreement, Poseidon must secure sufficient financial commitments from private investors to meet requirements for fully funding project construction. In addition, prior to Water Authority Board approval of a final agreement, Poseidon must execute all agreements for construction and operation of the project and finalize the documents needed to finance the project in the bond market.
"These terms are not a binding contract, but provide a solid foundation for
reaching a water purchase agreement that keeps this important regional water
supply project moving forward," said Claude A. "Bud" Lewis, Water Authority
Board Chair. "They also will protect our ratepayers' interests by assigning
appropriate upfront risks of building, financing, and operating the plant to
the private sector, while providing for eventual public ownership of the project."
Key terms for the water purchase agreement include:
• The term of the agreement will be for 30 years once commercial operation
begins, subject to early buyout provisions outlined below.
• The Water Authority will have no responsibility or liability for
the design, permitting, financing, construction, or operation of the project.
• The maximum price for purchasing water will be set equal to the contract
price in the existing water purchase agreements with the Desal Partners, nine
local water agencies currently contracted to buy water from the desalination
project. That contract price consists of a production cost of approximately
$1,100 per acre-foot and a delivery charge of about $500 per acre-foot, with
annual escalators tied to inflation. That price is competitive with other
local supply options and other desalination projects worldwide. The terms
also set principles for structuring price so that both parties will explore
ways for the Water Authority to share in potential cost-saving measures.
• An option for the Water Authority to purchase the project’s
conveyance pipeline from the plant site to the Water Authority’s Second
Aqueduct in San Marcos, once the plant has a proven track record of successful
operation. Purchasing the pipeline could enable the Water Authority to reduce
the price of the project’s water by up to $200 per acre-foot.
• An option to buy the entire plant beginning 10 years after the start
date for commercial operation at a price to be specified in the water purchase
agreement. The right to purchase the plant at the end of the 30-year water
purchase agreement term for $1. This would ensure eventual public ownership
of the plant, securing long-term price certainty and regional public benefit
from ratepayers’ past investments in the plant through 30 years of water
purchase payments.
The Water Authority will also conduct extensive analyses of the project's financial, legal, engineering and other technical aspects to ensure the project's water reliability and water quality meet the Water Authority's standards prior to approving a water purchase agreement. The Board approved spending up to $300,000 for these studies and for expert business and legal advice during contract negotiations.
The Carlsbad Desalination Project, under development since 1998, is a fully
permitted seawater desalination facility with all environmental clearances.
IDE Technologies, a worldwide leader in the design, construction and operation
of desalination plants, was selected by Poseidon through a competitive procurement
process to be the desalination process contractor for the project. IDE has extensive
experience in seawater desalination having constructed and operated two of the
largest reverse osmosis desalination plants in the world at Ashkelon and Hadera,
Israel.
When completed, the Carlsbad plant will provide 56,000 acre-feet of water annually.
By 2020, the project will supply approximately 8 percent of the region's total
water supply.
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The San Diego County Water Authority is
a public agency serving the San Diego region as a wholesale supplier of water
from the Colorado River and Northern California. The Water Authority works
through its 24 member agencies to provide a safe, reliable
water supply to support the region’s $174 billion economy and the quality of life
of 3.2 million residents.
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