Honor from The Bond Buyer magazine recognizes innovative municipal financing
November 8, 2013 – The Carlsbad Desalination Project on Friday was named the “Far West Deal of the Year” for 2013 by The Bond Buyer magazine, making it eligible for the publication’s top national honor to be announced Dec. 5 in New York.
- Total capital cost: $1.003 billion (includes plant, pipeline, financing costs and Water Authority system modifications)
- Bond interest rate: 4.78 percent
- Developer: Poseidon Water
- Construction contractors: Kiewit Infrastructure West and J.F. Shea Construction Inc.
- Water deliveries: Expected to begin in 2016
- Production: 48,000 to 56,000 acre-feet/year
For more than a decade, the editors of The Bond Buyer have selected outstanding municipal bond transactions for special recognition, honoring issuers who overcame myriad challenges to finalize deals. The 2013 awards considered deals that closed between Oct. 1, 2012 and Sept. 30, 2013. The prestigious competition drew a record number of nominations for transactions that ranged in size from a few million to billions of dollars.
Editors selected the California Pollution Control Financing Authority’s $734 million sale of water furnishing revenue bonds on behalf of the San Diego County Water Authority to fund the Carlsbad Desalination Project. “The deal – executed as a public-private partnership with Poseidon Resources – represents the first-ever project financing of a seawater desalination plant in the municipal market, establishing a new asset class for investors,” The Bond Buyer said Friday.
For the Carlsbad project, the accolade caps a year in which it also was named the “North American Water Deal of the Year” by Project Finance, an international trade publication that annually highlights major industry accomplishments around the world.
“It took more than two years to nail down all of the details for the public-private partnership that launched construction of the nation’s largest seawater desalination plant,” said Thomas V. Wornham, Chair of the Water Authority’s Board of Directors. “It’s gratifying that the finance industry recognizes our trailblazing work, and we look forward to the day when the project provides an additional safe and reliable water supply for our region.”
The Carlsbad Desalination Project includes a seawater desalination plant and a 10-mile, large-diameter pipeline being developed by Poseidon Water, formerly called Poseidon Resources. The private, investor-owned company develops water and wastewater infrastructure.
Terms for developing the plant and related facilities are detailed in the Water Purchase Agreement, which allowed the Water Authority to shift appropriate construction and operation risks to developers. The Water Authority only pays for water that is produced according to pre-set quality and quantity standards.
Project development included more than 40 public meetings before the purchase agreement was approved by the Water Authority’s Board on Nov. 29, 2012. Board approval launched an effort to meet project benchmarks by the end of 2012. Moody’s assigned a Baa3 rating to the desalination project bonds, bolstered by what Project Finance called the Water Authority’s “sterling” credit rating.
On Dec. 13, 2012, the project team secured a 4.78 percent interest rate for the bonds, saving Water Authority ratepayers an estimated $200 million over three decades compared to earlier projections. Financing closed on Dec. 24. Construction is now under way. The project is expected to produce up to 50 million gallons a day of desalinated water starting in 2016.
The desalination plant is being built on industrially zoned land adjacent to the Encina Power Station in Carlsbad. The new pipeline will deliver water from the plant to the Water Authority’s Second Aqueduct in San Marcos. The Water Authority will also make a number of improvements to its pipeline system and the Twin Oaks Valley Water Treatment Plant to integrate desalinated water.
The total cost for desalinated water, including the pipeline, is projected at $2,014 to $2,257 per acre-foot in 2012 dollars. While that is more costly than current water supplies, desalination is a more reliable, drought-proof supply. Water Authority projections also show seawater desalination it may be cost-competitive with imported water sources by the mid-2020s.