Successful Independent Advisory Services for San Diego County Water Purchase Agreement

Overview

SAIC provided independent advisory services instrumental to the approval of San Diego County Water Authority’s recent water purchase agreement (WPA). The WPA includes provisions for the Water Authority to buy up to 50 million gallons per day (MGD) of water to be produced from the Poseidon Resources’ Carlsbad seawater desalination project over the next 30 years.

"This deal is unique and will set the example for U.S. private
finance and public infrastructure management parties for what is needed to craft a non-recourse financed water project with U.S. public water utilities.”
- Neil Callahan, SAIC project manager

Currently, the Water Authority obtains water via the long-term Colorado River water conservation and transfer agreements with agencies in the Coachella Valley and Imperial County. The Water Authority then sells this water to its 24-member retail agencies, which in turn provides water to residents and businesses in San Diego County. The new WPA between the Water Authority and Poseidon will provide the city of San Diego with a local water supply from the Pacific Ocean and will improve system reliability.

A significant point in the deal was making a 56,000-acre-feet-per-year (AFY) take-or-pay offering and getting it to work with a 48,000 AFY minimum demand commitment. From a public policy perspective, the Water Authority felt compelled to take all reasonable steps to avoid paying for desalinated water it can’t resell to its customers, even under a take-or-pay contract. The resolution required the Water Authority to model their long-term customer demands, existing supply constraints, and operating supply priorities and match that information to a variable product water pricing structure.

The WPA supports the financing for the project, which will total $900 million and combines private activity bonds plus private equity capital for the Poseidon-owned plant and tax-exempt governmental purpose bonds issued by the California Pollution Control Financing Authority for the conveyance pipeline. This makes the project the largest public/private financed deal in the U.S. water market to date. The project will also be the largest desalination plant in the Western Hemisphere.