Carlsbad Desalination Project Negotiations, Due Diligence Proceeding on Schedule

Short Title
Carlsbad Desalination Negotiations on Schedule
Water Authority estimates public review of draft water purchase agreement will begin this spring

San Diego County Water Authority staff reported today they are making significant progress toward finalizing a draft agreement for purchasing water from the Carlsbad Desalination Project.  Contingent on the successful completion of negotiations with Poseidon Resources, the project’s private developer, staff told the Water Authority’s Board of Directors they expect to bring the draft water purchase agreement to the board for consideration this summer.

“We’re entering the home stretch of taking all the necessary steps to ensure we’re protecting the interests of the Water Authority, our member agencies and our ratepayers in determining the proposed commercial terms for purchasing water from Poseidon,” Director of Water Resources Ken Weinberg said.  “We’re close to knowing exactly what capital improvements we will need to make to our water distribution and treatment system to take water from the project.   Financial and project due diligence activities are also moving forward.  These activities will ensure our board knows the total costs that need to be reflected in the final draft water purchase agreement, as well as successful construction and operation of the desalination facilities, prior to the board’s final consideration and vote on the project.”

Weinberg told the board staff expects to release the final draft water purchase agreement for member agency and public review this spring.  Member agencies will have 60 days to review the agreement and declare whether they intend to purchase directly from the Water Authority, at full cost, a portion of the desalinated water supply from the Carlsbad project as a local supply for their agency.

As part of the review process, Weinberg said he currently expects board workshops to take place in May and June.  These workshops will be open to the public.  Exact dates will be set based on when the final draft water purchase agreement is released.

The Water Authority board approved a term sheet with Poseidon in July 2010 that set required conditions to be met before negotiations on a water purchase agreement could begin. In the  summer of 2011, Poseidon selected the joint venture of Kiewit Infrastructure West Co. and JF Shea Construction for the design and construction of the plant and conveyance pipeline if the project moves forward.   Poseidon has contracted with Israel Desalination Engineers to operate the plant.

Direct negotiations on the draft water purchase agreement began in November 2011.  Poseidon is reviewing a second draft of the agreement, and the Water Authority and Poseidon plan to have their next negotiating session in mid-February.

The connection of a pipeline from the desalination plant to the Water Authority’s regional conveyance system will require the reoperation of the Water Authority’s Pipeline 3, one of five major pipelines delivering imported water into the region.  In February, the Water Authority expects to complete a study of what improvements would need to be made to Pipeline 3 to enable it to deliver desalinated water north to the Water Authority’s Twin Oaks Valley Water Treatment Plant for blending and distribution throughout the region.

Water Authority staff and consultants also are proceeding with their due diligence reviews of Poseidon’s three project agreements with its contractors who will build and operate the desalination plant and pipeline.  The review of financial and other project documents as part of the project’s bond rating process is also taking place.

If approved, the Water Authority expects water from the Carlsbad project will be available by 2016. 

The Carlsbad Desalination Project, which has been in development since 1998 and has obtained all required permits and environmental clearances, would be the first large-scale seawater desalination plant in California.  If approved, it will produce 56,000 acre-feet of highly reliable local water annually – enough to meet the needs of more than 110,000 average single-family households.  In 2020, water from the plant would account for about 7 percent of the total regional supply and 32 percent of all locally produced water in San Diego County.