• News
  • Water

Authority examines agreement for proposed desal plant's water

After reviewing more financial details last week of a proposed contract to buy water from the planned seawater desalination plant in Carlsbad, the San Diego County Water Authority’s Board of Directors held a special board meeting Nov. 8, during which the public had a chance to speak and listen to analysis of the proposal.

The meeting was the first of two planned this month during which the board will consider the public-private partnership project.

The earliest a vote could occur on the matter is Nov. 29, but Water Authority spokesperson Donna Nenow indicated last week that the goal is not to rush the process.

Among topics discussed at the meeting were, cost analysis and a forecasting of electricity prices for desalination.

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 and Poseidon stands to earn no profit on that portion of the project’s financing, the Water Authority has said.

Bob Yamada, the Water Authority’s resources manager, addressed questions that had been brought up previously by the board, including the consequences of delaying approval of the water purchase agreement beyond November.

The Carlsbad Desalination Project is planned for construction on a corner of the existing Encina Power Station, owned by NRG Energy, on the edge of Carlsbad’s Agua Hedionda Lagoon.

It’s expected to be a 50 million gallon-per-day facility, producing about 56,000 acre-feet of fresh water per year.

“There are several parts to this,” Yamada said. “NRG is the owner of this site, and there is a lease that has been executed by Poseidon and NRG for the construction and operation of this desalination facility.”

The lease was first executed in 2003 and has been amended 10 times, generally for the purpose of pushing back the construction start deadlines.

Failing to approve the project this month, Yamada said, would require further extensions, opening up the lease for uncertainty because of potential changes in costs and terms.

There’s also the risk of losing project managers from the joint venture construction team of Kiewit-Shea Desalination, which was assembled in 2010 and been in a holding pattern since, to other projects.

“These firms cannot keep staff dedicated to the project indefinitely without moving them to other projects where their resources and expertise are needed,” Yamada said.

The pricing commitment agreed upon between Poseidon and the contractors expires Dec. 31, meaning an approval of the water purchase agreement before year’s end would be needed to ensure the costs assumed in the water purchase agreement as it’s written now are relevant. After Dec. 31, determining costs may be necessary.

In public comments, the legal advisor to the Coastal Environmental Rights Foundation, Coast Law Group’s Livia Borak, said the meeting was one of the most informative she’d been to in terms of rate allocation.

But she added that she’s long thought that there was a need for a cost-of-service study before the water purchase agreement is approved.

“We need to know how the rates are allocated before we approve a water purchase agreement,” she said. “It looks amazing to everybody if everybody thinks they’re going to get the rate allocation methodology they’re secretly hoping for, even publicly hoping for.”

Failing to do the cost-of-service before the agreement is approved will later leave some as surprise losers and some as surprise winners, she said.

She also spoke of project permitting risks noted by the California Coastal Commission.

“Your general manager said the Water Authority doesn’t want the risk of the mitigation associated with permitting this plant,” Borak said to the board. “That’s part of the reason the equity investors get the rate of return that they’re expecting to get. The risks, I don’t think, have been adequately relayed.”

She urged the board members to reach out to the Coastal Commission for further counsel on the issue before making a decision.

“I don’t think they agree that you can contract away liability for the permit requirements,” she added. “The water purchase agreement is between the county Water Authority and Poseidon. The Coastal Commission considers any part of that permit responsibility to be jointly and severally liable between the county Water Authority and Poseidon.

“So if Poseidon goes away, or goes into default, the county Water Authority is left with the mitigation implications.”

Under terms so far agreed upon, the Water Authority would agree to purchase water from the Carlsbad facility for 30 years, with Poseidon as the owner and operator of the desalination plant for at least the first 10 years.

The responsibility of site engineering, design, permitting, construction and plant start-up would be Poseidon’s.

The Water Authority would be obligated to purchase a minimum of 48,000 acre-feet of water per year, and up to a maximum of 56,000 acre-feet.

The total price for the water — including costs to make improvements to the Water Authority’s pipelines and treatment plant to accommodate the new supply — is estimated to range between $2,042 per acre-foot and $2,290 per acre-foot, depending on how much water is purchased.

The impact on individual water bills is expected to vary depending upon local water agency decisions.

The Water Authority has estimated that the average household’s bill would increase approximately $5 to $7 per month by 2016 to pay for the new supply.

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.

The proposed Water Purchase Agreement was announced in September after nearly a year of negotiations between the Water Authority and Poseidon, and remains non-binding until final approval is voted upon.

The desalination facility will cost about $691 million to build, plus about $213 million in financing costs on the underlying debt. Peter McLaggan, Poseidon senior vice president, has said that under reasonable conditions, Poseidon should be able to market the bonds and close financing within 30 days of Water Authority action.

He also said Poseidon would be prepared to begin construction as soon as notices to proceed are issued.

The Water Authority has scheduled a second special board meeting this month to address the water purchase agreement, planned for 1:30 p.m. Nov. 15.

User Response
0 UserComments