The cost of water
Water from the Carlsbad Desalination Plant is more expensive than the region’s traditional imported water sources, but it has the significant advantages of being drought-proof and locally controlled. The plant also is south of the major Southern California fault lines, providing added water supply security in case an earthquake severs imported water supply lines.
Desalinated water from the plant costs typical homeowners about $5 per month, at the low end of projections when the project was launched in late 2012. The costs are factored into the Water Authority’s 2016 and 2017 rates.
Based on current electricity cost estimates, the Water Purchase Agreement sets the price of water from the Carlsbad Desalination Plant at $2,125 to $2,368 per acre-foot in 2017, depending on how much is purchased annually. The first 48,000 acre-feet of water purchased each year will pay for the fixed costs of the project and the variable costs of water production. The Water Authority has the option to purchase an additional 8,000 acre-feet per year at a lower rate that reflects only the variable costs of incremental water production.
The Water Purchase Agreement allows for annual price increases for inflation estimated to average 2.5 percent per year. This compares favorably to the average 9.9 percent increase per year in imported treated water rates imposed by MWD from 2005 through 2018. In addition, Poseidon will be allowed to increase its price to accommodate changes in law or regulations that generally apply industry-wide to water treatment and desalination facilities. These cumulative increases are capped at 30 percent over the 30-year term of the agreement.
In December 2012, financing for the Carlsbad Desalination Project closed successfully, bringing with it $734 million in tax-exempt bond financing. The Water Authority worked with Poseidon to secure a favorable interest rate of 4.78 percent, saving an estimated $200 million in financing costs over three decades compared to earlier projections. Independent analysts cited the Water Authority’s financial stability and strong credit ratings, along with the strategic importance of the desalination plant, as critical factors in their positive assessments of the debt.
Water Purchase Agreement Documents
For more information on the Water Furnishing Revenue Bonds, Series 2012 (San Diego County Water Authority Desalination Project Pipeline) (Series 2012 Pipeline Bonds), including CUSIPs and the Limited Offering Memorandum, please click here.
Water Purchase Agreement (Technical appendices to the agreement are available on request)
Board memo and resolution: Potential Adoption of Seawater Desalination Water Purchase Agreement