Public Workshop on issues related to theCarlsbad Desalination Project                                San Diego County Wate...
 Wholesale water agency  created by State Legislature in  1944     24 member agencies     36-member board of directors ...
State Water Project Facilities                                 MWD Water                                  Facilities      ...
1990-91: Bottom of the Basket Falls Out                                          4
Resource Strategies to Manage Shortages  Strategy                   1991       2012  Long-term Conservation        875    ...
 High reliance on single supply source             Drought   MWD imported supplies from SWP and Colorado    River   Pot...
SWP Lake Oroville June 20053.6 Million Acre-Feet – 99% Capacity                                       7
SWP Lake Oroville February 20081.4 Million Acre-Feet – 40% Capacity                                       8
140                         % of Average Inflow at Lake Powell            120            100Percent of Inflow             ...
Source: Metropolitan Water District Presentation 09-25-12                                                       10
1,000Total Demand (TAF)                        900                        800                        700                  ...
 Employ resource strategies unique to  local conditions No single resource strategy can manage  all uncertainties Multi...
 New, local water supply Reduces need for imported water  from environmentally sensitive  areas Drought-proof supply I...
 Consistent with diversification  strategy One of few options in San Diego  region that can provide large  amounts of lo...
$2,041                     Carlsbad (Poseidon)                                                                $2,290      ...
Existing/Proposed Water Supplies for                                                 the San Diego Region                 ...
Unsure 3%   Not Important        15%                                Important                                  82%58% resp...
 Significant uncertainties over current supplies affect  regional reliability Seawater Desalination is important part of...
20
 Water Authority Project Company: Poseidon Plant EPC Contractor: Kiewit-Shea Joint Venture Process Engineering and Equ...
Poseidon Resources LLC   Poseidon is the developer and manager of the    Project   Founded in 1995 with a sole focus on ...
Private Project ParticipantsKiewit is one of the largest EPC companies in the U.S. with over 125years of experience       ...
Private Project ParticipantsJ.F. Shea is a California-based construction company with over 100years of experience construc...
IDE is an internationally recognized leader in the turnkey delivery andoperation of large scale seawater desalination proj...
26
Seawater InletDischarge channel                    27
28
29
Project Video
TOVWTP                                             TOVWTP                                             Improvements        ...
Desal Conveyance Pipeline10-miles of new 54-inch pipe                               32
Desalination Conveyance Pipeline 10-miles of 54-inch welded steel pipeline Poseidon / Kiewit-Shea will be responsible fo...
Pipeline 3 Relining                      34
35
TOVWTPImprovements               36
Twin Oaks Valley Water Treatment      Plant Improvements New facilities and modifications to existing facilities     New...
AqueductConnectionFacilities             Aqueduct             Connection             Facilities                          38
 Approximately 36 months to construct Plant and  Pipeline   Plant must pass a 30 day performance test to begin    commer...
Time Period                    Activity                         • Environmental review and2005-2008                       ...
Pursuing an Appropriate Risk/Reward Tradeoff    Why a Water Purchase Agreement?                                           ...
 30 years from the date of commercial operation Subject to early buy-out provisions Can be extended for up to 3 years d...
   Permit, Design and Build the Desal Plant (WPA)   Permit, Design and Build the    Product Water Pipeline (Design-Build...
   “Take or Pay” for Product Water if it meets specifications    (minimum of 48,000 AF/Year)   Timely Construction of TO...
 Equity Investment: $164 Million Project Financing: Non-Performance Risk  Incentivizes Bondholders to Cure Breaches Let...
 Product Water Quality Guarantee    Compliance with all federal and state drinking water regulations    Additional stan...
 Purchase options at Water Authority sole discretion Convenience Termination   Early buy-out provision End of Term   ...
 Construction and Operating Cost Overruns Timely Project Completion Regulatory and Law Compliance Regulated or Differi...
1.   The Electricity Charge     is driven by:     •       Terms of Poseidon’s                             3.    The Capita...
60,000   First 48,000          58,000    Acre Feet paid at                          56,000    Fixed and Variable         ...
52
53
Factors driving higher           Factors driving lower         growth rate                     growth rate• Renewable Port...
 California Energy Commission forecasts SDG&E industrial rates will escalate  0.5% - 1.7% annually Water Authority sensi...
Total Capital Cost Plant and Pipeline Cost:                     $691 Million Financing Costs:                           ...
 October Special Board Meeting – Oct. 11, 2012     Australian Desalination experience     Detailed discussion on Draft ...
Public Workshop/Special Water Planning Committee Meeting - Carlsbad Desalination - October 10, 2012
Public Workshop/Special Water Planning Committee Meeting - Carlsbad Desalination - October 10, 2012
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Public Workshop/Special Water Planning Committee Meeting - Carlsbad Desalination - October 10, 2012

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The second of two public workshops on issues related to the Carlsbad Desalination Project. This presentation, given at the workshop, covers the terms of the proposed water purchase agreement.

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Public Workshop/Special Water Planning Committee Meeting - Carlsbad Desalination - October 10, 2012

  1. 1. Public Workshop on issues related to theCarlsbad Desalination Project San Diego County Water Authority Special Water Planning Committee Meeting 1 October 10, 2012
  2. 2.  Wholesale water agency created by State Legislature in 1944  24 member agencies  36-member board of directors  3.1 million people  $186 billion economy Mission is to provide safe and reliable water supply to member agencies Service area  950,000 acres  97% of county’s population 2
  3. 3. State Water Project Facilities MWD Water Facilities Colorado River Aqueduct Water Authority Facilities 3
  4. 4. 1990-91: Bottom of the Basket Falls Out 4
  5. 5. Resource Strategies to Manage Shortages Strategy 1991 2012 Long-term Conservation 875 69,680 Recycled Water 1,170 24,010 Brackish Groundwater 0 6,280 Colorado River Transfers 0 165,000 TOTAL (Acre-Feet) 2,045 264,9701991 Supply Portfolio 2012 Supply Portfolio MWD MWD 95% 45%
  6. 6.  High reliance on single supply source Drought  MWD imported supplies from SWP and Colorado River  Potential for imported supply shortages o Recurring droughts o Regulatory restrictions on SWP deliveries o Delta levee failure due to earthquake SWP Reliability o Limited storage reserves on the SWP Future water demand increases Potential effects of climate change 6
  7. 7. SWP Lake Oroville June 20053.6 Million Acre-Feet – 99% Capacity 7
  8. 8. SWP Lake Oroville February 20081.4 Million Acre-Feet – 40% Capacity 8
  9. 9. 140 % of Average Inflow at Lake Powell 120 100Percent of Inflow 80 60 40 20 0 Water Year 9
  10. 10. Source: Metropolitan Water District Presentation 09-25-12 10
  11. 11. 1,000Total Demand (TAF) 900 800 700 600 2020 2025 2030 2035 Baseline Demand without Price Effect Baseline Demand with Price Effect SBx 7-7 Compliance Demand 11
  12. 12.  Employ resource strategies unique to local conditions No single resource strategy can manage all uncertainties Multi-faceted approach required Low-water using landscape  Conservation  New supplies  Supply diversification  Infrastructure improvements Reclaimed water pipelines 12
  13. 13.  New, local water supply Reduces need for imported water from environmentally sensitive areas Drought-proof supply Improved water quality Cost on par with other new, local water supplies  Energy use higher than other supply sources Enhances regional supply reliability and local control 13
  14. 14.  Consistent with diversification strategy One of few options in San Diego region that can provide large amounts of local supply Included in approved 2010 SDCWA Urban Water Management Plan  Identifies reliable resource mix to meet existing and future demands 14
  15. 15. $2,041 Carlsbad (Poseidon) $2,290 Mission Basin Narrows $1,717 $1,475 Otay River $2,086 $1,975 City of SD RWS* 2,375** $1,628North San Diego County Regional Reuse $1,730 $1,900 Camp Pendleton Desalination $2,340 (100 mgd) (50 mgd) 0 500 1,000 1,500 2,000 2,500 3,000 $/AF Brackish Groundwater Recycled / IPR Seawater Desalination *Cost range includes wastewater related costs that ** Incentive funding reduced at 2011 value of $275. RWS may reduce the unit cost by up to $600/AF. assumes deduction for incentives on 20 year NPV basis. 15
  16. 16. Existing/Proposed Water Supplies for the San Diego Region Energy as a Percentage of Unit Cost 40% 35%Energy cost as a percent of Total Unit 30% 25% Cost 20% 15% 10% 5% 0% Otay River Indirect State Water Carlsbad Brackish Potable Project Desalination Groundwater Reuse Project 16 Desalination
  17. 17. Unsure 3% Not Important 15% Important 82%58% respondents indicated willingness to pay an additional $5 or more per month for seawater desalination 17
  18. 18.  Significant uncertainties over current supplies affect regional reliability Seawater Desalination is important part of strategy to address uncertainties Important to continue multi-faceted approach  Conservation 2020 Diverse Supply Portfolio  New supplies Local Surface Recycled Water Seawater Water Desalination  Supply diversification 6% 6% 9% Groundwater 2%  Infrastructure improvements Conservation 13% MWD 30% Canal Lining Transfer 10% IID Transfer 18 24%
  19. 19. 20
  20. 20.  Water Authority Project Company: Poseidon Plant EPC Contractor: Kiewit-Shea Joint Venture Process Engineering and Equipment: IDE Operating Services Provider: IDE 21
  21. 21. Poseidon Resources LLC Poseidon is the developer and manager of the Project Founded in 1995 with a sole focus on development, management and investing in water infrastructure Portfolio and pipeline include domestic and international projects, with specific focus on seawater desalination  Currently developing other desalination projects in California and Florida using similar development, construction, operation and ownership approach Senior management team has developed, financed, and constructed over $10 billion in infrastructure projectsStonepeak Infrastructure Partners LLC Stonepeak will be principal new equity investor in the project Invests in traditional infrastructure assets with a focus on North America TIAA-CREF is a founding investor in the fund The firm was previously the infrastructure division of Blackstone The Firm’s founding partners have invested over $2 billion of equity into North American infrastructure. 22
  22. 22. Private Project ParticipantsKiewit is one of the largest EPC companies in the U.S. with over 125years of experience Select Kiewit Experience Kiewit ranks as the country’s top contractor in the delivery of water Bakersfield Wastewater supply projects, according to Treatment Plant, California Doubling the plant’s capacity Engineering News-Record magazine and providing secondary and tertiary treatment processes Over the last ten years, Kiewit has provided procurement, construction and start-up South Bay Water Reclamation services for more than 280 public and Plant, California private water supply projects totaling more Constructed equalization tanks, sedimentation basins, than $6.3 billion in contract revenue aeration basins, secondary  Includes over $240 million of construction clarifiers, and an effluent pump station work for the SDCWA in the past decade P1-102 Activated Sludge Projects include water and wastewater Treatment Facility California treatment facilities, dam/viaduct Upgrading the existing facility and adding a secondary construction, pipeline/aqueduct development treatment facility with a 60 and pump station implementation MGD capacity 23
  23. 23. Private Project ParticipantsJ.F. Shea is a California-based construction company with over 100years of experience constructing water and wastewater projects Shea has completed in excess of 441,000 Select J.F. Shea Experience linear feet of pipeline construction for water Advanced Water Treatment system throughout the southern California Plant, Fountain Valley, California area  These pipelines range in size from 36 to 192 inches in diameter San Diego Pipeline No. 6, – The Poseidon pipeline will be 54 Winchester, California inches in diameter  Includes over 70,000 linear feet in various projects for the SDCWA Walnut Hill Water Treatment Plant, Boston, J.F. Shea has also recently completed the Massachusetts world’s largest reverse osmosis wastewater (75 MGD) to drinking water treatment plant 24
  24. 24. IDE is an internationally recognized leader in the turnkey delivery andoperation of large scale seawater desalination projects IDE has developed nearly 400 plants in Select IDE Projects more than 40 countries worldwide over its Hadera Desalination Plant, 45 years of operation Israel The world’s largest (92 MGD) reverse osmosis desalination The installed capacity of IDE plants is over plant completed in 2010 530 MGD Ashkelon Desalination Plant,  Includes 3 reverse osmosis projects of Israel similar or larger size than the Carlsbad The world’s then-largest (87 project MGD) seawater reverse osmosis desalination plant completed in 2006 Currently designing and constructing the Reliance Industries Soreq Desalination Project which will be a Desalination Plant, India 109 MGD seawater reverse osmosis plant India’s largest seawater desalination plant, and one of the world’s largest multi effect Named the “Desalination Company of the distillation (MED) plants completed in 1998; last Year” for 2010 Global Water Intelligence expanded in2008 25
  25. 25. 26
  26. 26. Seawater InletDischarge channel 27
  27. 27. 28
  28. 28. 29
  29. 29. Project Video
  30. 30. TOVWTP TOVWTP Improvements P3 relining 5-miles CarlsbadPacific 54-inch steel pipe PipelineOcean Desal Interconnection WTP 10-miles Encina Power Station San Marcos Pipeline 3 Pipeline 4
  31. 31. Desal Conveyance Pipeline10-miles of new 54-inch pipe 32
  32. 32. Desalination Conveyance Pipeline 10-miles of 54-inch welded steel pipeline Poseidon / Kiewit-Shea will be responsible for design and construction SDCWA will own, operate and maintain Built entirely within existing city streets  Carlsbad  Vista  San Marcos Traffic control measures to minimize public impacts Approximately 2-year construction duration Two construction headings working simultaneously 33
  33. 33. Pipeline 3 Relining 34
  34. 34. 35
  35. 35. TOVWTPImprovements 36
  36. 36. Twin Oaks Valley Water Treatment Plant Improvements New facilities and modifications to existing facilities  New connection to P3  New pipeline from P3 to existing treated water storage tanks at TOVWTP  Modification to existing treated water flow control facility  New water conditioning chemical feed systems 37
  37. 37. AqueductConnectionFacilities Aqueduct Connection Facilities 38
  38. 38.  Approximately 36 months to construct Plant and Pipeline  Plant must pass a 30 day performance test to begin commercial operations Approximately 30 months to complete Water Authority improvements 39
  39. 39. Time Period Activity • Environmental review and2005-2008 permitting • Member Agencies request Water2010 Authority involvementJuly 2010 • Board approved Term Sheet2010-2011 • 17 Public meetingsJanuary 2012 – present • 15 Public meetings 41
  40. 40. Pursuing an Appropriate Risk/Reward Tradeoff Why a Water Purchase Agreement? 42
  41. 41.  30 years from the date of commercial operation Subject to early buy-out provisions Can be extended for up to 3 years due to force majeure events 43
  42. 42.  Permit, Design and Build the Desal Plant (WPA) Permit, Design and Build the Product Water Pipeline (Design-Build Agreement) Operate and Maintain the Desal Plant Supply Product Water 44
  43. 43.  “Take or Pay” for Product Water if it meets specifications (minimum of 48,000 AF/Year) Timely Construction of TOVWTP Improvements and Pipeline 3 Rehabilitation Physically be able to receive Product Water Operate and Maintain the Conveyance Pipeline, the TOVWTP Improvements and Pipeline 3 45
  44. 44.  Equity Investment: $164 Million Project Financing: Non-Performance Risk Incentivizes Bondholders to Cure Breaches Letter of Credit to Secure Performance Letter of Credit to Assure Financing 46
  45. 45.  Product Water Quality Guarantee  Compliance with all federal and state drinking water regulations  Additional standards for certain water quality parameters Minimum Product Water Delivery Guarantee  Annual supply to meet Water Authority demands (between 48,000 and 56,000 Acre Feet) Water Ordering Rights  Water Authority rights to adjust delivery orders to reflect seasonal and daily demand changes 47
  46. 46.  Purchase options at Water Authority sole discretion Convenience Termination  Early buy-out provision End of Term  $1 end of 30-year term Event of Default 48
  47. 47.  Construction and Operating Cost Overruns Timely Project Completion Regulatory and Law Compliance Regulated or Differing Site Conditions Capital Maintenance, Repair and Replacement Labor Supply and Relations 49
  48. 48. 1. The Electricity Charge is driven by: • Terms of Poseidon’s 3. The Capital Charge O&M Agreement with is driven by: IDE • Poseidon’s Capital Budget • SDG&E Rates Electricity • Bond Issuance • Water Authority’s • Negotiated Equity option to select Charge Return/Developer supplier Fee The Electricity Charge will Capital • Development period vary with electricity prices Charge costs2. The Operating Charge Operating The Capital Charge is is driven by: fixed at a pre- Charge established escalation • Terms of Poseidon’s rate O&M Agreement with IDE • Other operating expenses The Operating Charge is indexed to CPI 50
  49. 49. 60,000 First 48,000 58,000 Acre Feet paid at 56,000 Fixed and Variable 5 6 ,0 0 0 5 5 ,2 6 1 Price 54,000 5 4 ,3 4 8 5 4 ,0 6 8 5 3 ,6 3 3 52,000 Next 8,000 Acre 5 1 ,3 7 3 Feet paid at 50,000 5 0 ,3 2 9 5 0 ,3 2 5 Variable Unit Price 4 9 ,5 8 3 4 9 ,3 2 8 48,000 If Poseidon does 46,000 not deliver, Water 44,000 Authority does not 42,000 pay 40,000 AF 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Annual Projected Desal Purchases in AF Wet Weather Hydrology 51
  50. 50. 52
  51. 51. 53
  52. 52. Factors driving higher Factors driving lower growth rate growth rate• Renewable Portfolio Standard • Natural Gas Prices (RPS) • Demand-Side Response• AB 32 • Rate-Setting Process 54
  53. 53.  California Energy Commission forecasts SDG&E industrial rates will escalate 0.5% - 1.7% annually Water Authority sensitivity analysis to double historic average Electricity charge escalation is expected to be comparable with Operating Charge escalation and the fixed escalation of the Capital Charge Electricity costs are expected to remain approximately 25% of the Water Unit price over the term of the WPA 55
  54. 54. Total Capital Cost Plant and Pipeline Cost: $691 Million Financing Costs: $213 Million Water Authority improvements $ 80 Million and construction oversight _____________ $984 millionTotal Unit Cost 1 48,000 acre feet per year 56,000 acre feet per year $2,290/AF $2,041/AF 1Includes debt service, operations, Water Authority construction oversight and administrative costs 56
  55. 55.  October Special Board Meeting – Oct. 11, 2012  Australian Desalination experience  Detailed discussion on Draft WPA costs and terms  Continue discussions on financial components  Continue discussion on rate structure October Regular Board Meeting – Oct. 25, 2012  Review actions related to Pipeline 3 rehabilitation, Twin Oaks and other distribution system activities  Carlsbad Desalination Project Permit status  Continue discussions on financial components and rate structure November Special Board Meeting – Nov. 8, 2012 57

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