LOS ANGELES — The San Diego County Water Authority on Thursday released a $3 billion water purchase agreement with Stamford-based Poseidon Resources, the private developer of a Carlsbad seawater desalination plant.
If the water authority’s board approves the agreement after two public hearings planned for Oct. 2 and Oct. 10, it will culminate a decade-long process by Poseidon to get the $900 million desalination plant and pipeline built that included the resolution of multiple lawsuits brought by environmental advocates.
The board vote could come as soon as late November, officials said.
“We are thrilled we have passed this major milestone and appreciate all the work the water authority has put into due diligence including all of the public workshops,” said Scott Maloni, Poseidon’s vice president of development. “It’s a fairly complex deal, a $900 million privately structured infrastructure, of a type never done in the State of California.”
SDCWA and Poseidon received preliminary approval on Sept. 18 from the California Pollution Control Financing Authority to issue $780 million in bonds to pay for construction of the desalination plant and a 10-mile pipeline to supply water to the San Diego area.
The state agency will wait until after the water authority’s board votes on the purchase agreement to deliberate on final approval for the bonds, Maloni said.
Poseidon had already received preliminary approval for the $780 million bond issuance in October 2011, but came back to the state agency to request that SDCWA be added to the proposal.
Under the agreement, $550 million in private activity bonds would be issued by the agency for Poseidon and $230 million in governmental purpose bonds would be issued on behalf of SDCWA to finance the pipeline.
Poseidon would be responsible for debt service payments on both sets of bonds.
The second set of bonds would be issued on the SDCWA’s behalf because of the likely savings from the water authority’s AA-plus credit ratings and because the water authority will own and operate the pipeline, said Sandy Kerl, deputy general manager of the water authority. The authority has AA-plus ratings from Standard & Poor’s and Fitch Ratings and Aa2 on its senior lien obligations from Moody’s Investors Service.
“The water authority was added to the process, because we bifurcated the financing with the pipeline and the plant,” said Andrew Kingman, Poseidon’s chief financial officer. “The pipeline should not be subject to alternative minimum tax.”
As a result, bondbuyers will expect lower yield for the bonds, Kingman said. The lower yield will save on water costs and the water authority as owner of the pipeline will not have to pay taxes on the pipeline.
Under the agreement, the water authority also has the option to purchase the desalination plant for $1 after 30 years.
“If this agreement is approved, the Carlsbad Desalination Project would meet our region’s long-term water supply reliability goal of having 7% of our region’s water supply needs met through saltwater desalination by 2020,” said Water Authority general manager Maureen Stapleton in a statement.
Under the agreement, the total price for the water is estimated at $2,042 to $2,290 per acre foot, or approximately 325,900 gallons. The water authority would purchase at least 48,000 acre-feet of desalinated water annually at the predetermined price for 30 years. The agency could purchase water in excess of that amount at a lower rate.
The project would provide up to 56,000 acre-feet of water annually for the region starting as early as 2016. By 2020, the project would account for approximately 7% of the total projected regional supply and about one-third of all locally generated water in San Diego County.
Poseidon received approval in 2009 from the California Debt Limit Allocation Committee to issue up to $530 million in bonds.
At that time, the company had an agreement with seven different water agencies rather than the single agreement it now has with the water authority, Kingman said.
That approval expired, but Kingman said the company will not have to return to the debt limit allocation committee because the CPCFA has enough volume capacity for the project.
