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Water Authority holds last special meeting before possible vote on desal agreement

The San Diego County Water Authority’s board of directors held a second special board meeting Thursday to discuss the proposed water purchase agreement between the Water Authority and Poseidon Resources, for water expected to be produced by the proposed Carlsbad Desalination Project.

Poseidon, which would be the owner and operator of the desalination plant, and responsible for site engineering, design, permitting, construction and plant start-up, is hopeful for an approval of the agreement — drafted in October — by the board’s next regular meeting Nov. 29.

The joint venture construction team of Kiewit-Shea Desalination was assembled back in 2010 by Poseidon in anticipation of a more accelerated project timeline than has come to be. The Water Authority held the first of the two special board meetings related to the issue Nov. 8.

Board members listened Thursday as Water Authority staff reviewed items that would need to be added to environmental impact reports for purposes of complying with the California Environmental Quality Act, as well as key documentation that would need approval along with an overall approval of the water purchase agreement should the board take that action in a couple of weeks.

Dave Chamberlain, a principal engineer with the Water Authority, reminded board members of a memo written in October regarding several board actions that will be necessary.

Included in the list of items needing consideration were approvals of obligations under bond financing agreements, a design-build agreement for the project, member agency water purchase contracts and adjustments to the Water Authority’s capital improvements program budget.

The pipeline improvements and additions, Chamberlain said, would require an increase of about $80 million to the CIP budget, reflecting costs associated with providing project construction oversight at the plant construction site and the construction costs associated with building the Carlsbad-to-San Marcos pipeline and improving existing infrastructure along the pipeline route. Though Poseidon will own and operate the desalination plant when it’s built, the 10-mile pipeline would belong to the Water Authority.

Director Fern Steiner asked how far in advance those documents would be prepared, and Director Vince Mudd asked that they be ready for review by Nov. 27, nine days ahead of a possible vote. Steiner and Mudd both represent the city of San Diego on the board.

“If we’re going to be asked to approve them, we as a board actually need to see those documents,” Steiner said.

Water Authority staff responded by saying it would work to meet Mudd’s request, with Chamberlain saying earlier in the meeting that they would be made available “well in advance.”

Concerns have been raised at previous meetings of possibly rushing the project to meet what some have considered phantom deadlines, such as the upcoming expiration of a lease between Poseidon and Encina Power Station owner NRG Energy for the construction and operation of the desalination facility.

The lease was first executed in 2003 and has been amended 10 times since, generally for the purpose of pushing back the construction start deadlines. Another extension would likely be required if the Water Authority does not approve the water purchase agreement soon, opening up the lease for uncertainty because of potential changes in costs and terms, staff contends.

As for the member agency water purchase contracts, none have been brought forward as of yet to Water Authority staff, but Chamberlain said he had been told some jurisdictions were still reviewing their options. The contracts would outline member agencies’ requests for shares of the water coming from the desalination plant before the Water Authority makes a final decision on the purchase agreement with Poseidon.

Most of the project’s capital cost, 82 percent, will be financed through tax-exempt bonds as a direct pass-through to the Water Authority. Poseidon won't earn any profit on that portion of the project’s financing, the Water Authority has said. It’s expected to be a 50 million gallon-per-day facility, producing about 56,000 acre-feet of fresh water per year.

Under terms subject to board approval in the public-private partnership, the Water Authority would agree to purchase water from the Carlsbad facility for 30 years, with Poseidon as the owner and operator of the plant for at least the first 10 years and the Water Authority obligated to purchase a minimum of 48,000 acre-feet of water per year, and up to a maximum of 56,000 acre-feet.

After 10 years of plant operation, the Water Authority would have the option to purchase the facility at any time, and would only have to pay $1 for it if it decides to wait the full 30 years to do so.

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