HomeMy WebLinkAbout2005-04-20; City Council; 18085; Development of Seawater Desalination Facility1
AB# 18,085 TITLE:
MTG. 4/29/05 AUTHORITY REGARDING THE DEVELOPMENT OF A
DEPT. ADMIN
AGREEMENT WITH SAN DIEGO COUNTY WATER
SEAWATER DESALl N AT10 N FACILITY
SERVICES
DEPT. HD.
CITY ATTY
CITY MGR
m
RECOMMENDED ACTION:
Adopt Resolution No. 2005-120 Approving the Agreement Memorializing Certain
Understandings and Establishing a Framework for Cooperation between the San Diego
County Water Authority and the City of Carlsbad, Carlsbad Municipal Water District, and the
Carlsbad Housing and Redevelopment Agency.
ITEM EXPLANATION:
In June 2000, the Carlsbad Municipal Water District (CMWD) Board held its first public
discussion of possible development of a desalination plant in Carlsbad. At that time,
Poseidon Resources was before the CMWD Board asking for approval and endorsement of
a study to be conducted by Poseidon and its consultants on the feasibility of constructing a
25 to 50 million gallons per day (MGD) seawater desalination plant in Carlsbad. The
CMWD Board approved Poseidon’s request (Resolution 1093, 6/27/00). This action put
into motion a process that continues to move Carlsbad and the region closer to the creation
of the first large scale desalination facility on the west coast, and perhaps the largest facility
in the nation.
Even during these early discussions, the CMWD Board and Carlsbad City Council
recognized that there were two paths that could lead to the development of a desalination
plant in Carlsbad. One could be a public project, owned and operated by San Diego
County Water Authority (SDCWA), developed through the normal public works process of
design, bidding, oversight, distribution, and pricing. The other could be a private project
developed by Poseidon Resources, using private procurement methods and operating
practices, and selling water to public agencies through both public and private water lines at
prices negotiated as part of a water purchase agreement.
Since June 2000, staff has worked with both SDCWA and Poseidon Resources to develop
agreements that would define how these two possible futures could become one reality.
And, although negotiations with SDCWA were on hold between January and August 2004,
staff continued working with Poseidon Resources on the development of a Water Purchase
Agreement (WPA). The CMWD Board approved the WPA between CMWD and Poseidon
Resources on October 19, 2004 (Resolution No. 1229).
On August 12, 2004, talks between SDCWA and Carlsbad reopened. At the August 12
SDCWA Board meeting, SDCWA reaffirmed its interest in reaching an agreement with
Carlsbad on the development of a public and/or public-private project and directed its staff
to return to the table to craft an agreement. Carlsbad continued to be interested in
developing an agreement with SDCWA due to SDCWA’s important role in securing funding
for the desalination project and providing a market for desalinated water through the
SDCWA distribution system. 1
PAGE 2 OF AGENDA BILL NO. 18,085
The purpose of this agenda bill is to report to the City Council, CMWD Board, and Housing
and Redevelopment Commission that staff has completed negotiations with SDCWA with
regard to the parties rights and obligations concerning a regional desalination project. The
current form of the agreement meets Carlsbad’s goals for participation in a regional
desalination project with regard to water quality, quantity, reliability and price, and secures
for the City of Carlsbad, CMWD, and the South Carlsbad Coastal Redevelopment Area
(SCCRA) the financial ability to construct certain important public improvements in the
vicinity of the desalination plant.
Under the goals of quantity and quality, the agreement provides Carlsbad the right to
purchase up to 5,000 acre feet of water from the regional desalination plant, should
SDCWA decide to construct the plant. This water will meet the District’s water quality
standards, and will provide safeguards to assure that the delivery of desalinated water to
Carlsbad will not negatively affect the infrastructure (pipelines, valves and other
components of the delivery system) through increased corrosion or deterioration.
With regard to reliability, the agreement provides that, in the event of a drought, SDCWA
will assist Carlsbad in the purchase and transfer of water, at Carlsbad’s expense, from other
sources, using a number of existing water resource programs available to SDCWA
members. These programs will allow Carlsbad to retain a 90% service level in the event of
drought reductions through the purchase and transfer of water from other regions of the
state and water storage systems. The use of these water sources may require the
cooperation of SDCWA, MWD or other water agencies that are outside the influence of
Carlsbad, but are within the water sources available to SDCWA.
The price that Carlsbad would pay for the desalinated water produced by the regional
desalination plant will be the SDCWA cost to produce the water, plus a delivery charge, less
a rebate from MWD, currently estimated to be $250 per acre foot. The actual cost of
production and delivery will be known once SDCWA begins operation of the plant.
Carlsbad will make a commitment to receive desalinated water prior to commencement of
construction of the regional desalination project. This commitment would establish the
amount of water Carlsbad would purchase for a period of 30 years. During this time,
Carlsbad would be allowed to count the water delivered from the regional desalination plant
as a local source when computing reductions associated with drought or restrictions on
imported water.
The complex interaction of the jurisdictional powers held by SDCWA and the various
Carlsbad agencies that are party to this agreement created the need to address the
question of how project approval and control would be handled. Typically, SDCWA
contends that its projects are not subject to the control of local governments with regard to
building and zoning laws. Although Carlsbad agrees with this characterization of the
statutory powers of SDCWA as they relate to the City of Carlsbad’s building and zoning
codes, there was a debate about how the statutory powers of the SCCRA might affect the
development of an SDCWA project within the SCCRA boundaries. To resolve this issue
SDCWA has agreed to submit the project plans to Carlsbad for review, to consider
Carlsbad’s comments, and to meet and consult with Carlsbad in the event of a dispute over
project development issues. Each party retains its powers and reserves its usual rights and
PAGE 3 OF AGENDA BILL NO. 18,085
responsibilities under the law in the event that disputes cannot be resolved during the
project review process.
Another complicated issue was developing an appropriate way to address the effectsthe
regional desalination project would have on public facilities in its general vicinity and within
the SCCRA boundary. Two types of impacts were considered. The first were specific
public projects (listed in Exhibit E of the agreement) required to serve the regional
desalination project and mitigate impacts. SDCWA has agreed to pay to the SCCRA a total
of $5.5 million at the time construction begins on the project to fund these mitigation
projects.
The second type of impact is a potential reduction in the property tax increment that would
be received by SCCRA from a private desalination project. Carlsbad is currently processing
a private application for the development of a desalination project on the Encina Power
Station property. SCCRA is proposing to use the tax increment revenue generated by the
private desalination project to support the development of public projects within the SCCRA
boundaries, and is dependent on these revenues for the successful completion of its capital
improvement program. The potential loss of these revenues would seriously damage the
ability of SCCRA to carry out the development of public projects that serve the public using
the central coastal region of Carlsbad.
If the project remains privately owned, there is no interruption of the flow of tax revenue
dollars to SCCRA. However, if instead of there being a private desalination project,
SDCWA constructs and operates a regional desalination project, property tax increment
revenue would no longer be received by SCCRA. SDCWA has never caused a private
asset of this size (estimated to be valued between $250 and $300 million) to become
exempt from taxation. Therefore, SDCWA has never previously had to address the effects
of removing such a valuable private property from the tax roles, or the effects of this loss on
public projects funded from the tax increment revenue stream.
SDCWA has recognized the unusual circumstances surrounding the potential ownership of
this project, and has agreed to limit, to some extent, the revenue loss. The SDCWA has
agreed to cap the exposure for lost revenues by agreeing to contribute up to $15.3 million to
SCCRA. In addition, the amount of this contribution will be reduced by the present value of
any tax payments made while a private desalination project is operating at the site. As a
result, SCCRA can depend on a minimum of $15.3 million (present value) in tax increment
revenue regardless of whether there is a private or regional desalination project. At the
same time, SDCWA has limited its contribution to SCCRA, and will not be required to make
any payment to SCCRA unless the regional desalination project becomes exempt from
taxation.
ENVIRONMENTAL REVIEW:
The proposed Agreement between the San Diego County Water Authority, the City of
Carlsbad, Carlsbad Municipal Water District and the Carlsbad Housing and Redevelopment
Agency establishes the framework for mutual cooperation, understanding and processing of
a future regional desalination project should SDCWA determine to proceed. That decision
has not been made and will receive complete environmental review pursuant to the
California Environmental Quality Act prior to obtaining the necessary and appropriate
PAGE 4 OF AGENDA BILL NO. 18,085
permits. This Agreement does not commit any agency to fund or approve any project. The
City of Carlsbad is currently processing a private desalination project at this location and the
environmental impact report for that project is underway.
Since the Agreement itself will not have any physical impact on the environment or commit
any agency to any project or funding for any project, it is covered by the general rule that
CEQA applies only to projects that have the potential for causing a significant effect on the
environment. In this case, it can be seen with certainty that there is no possibility that the
Agreement itself may have a significant effect on the environment and it is not subject to
CEQA pursuant to CEQA regulation 15061 (b)(3).
FISCAL IMPACT:
Should both Carlsbad and SDCWA approve this agreement, and SDCWA decides to go
forward with the regional desalination project there would be a number of fiscal impacts on
both agencies. For CMWD, the agreement would require that the District purchase 5,000
acre feet of desalinated water at the SDCWA cost to produce and transport that water to
District storage facilities. The cost to produce and transport can only be determined after
the project is completed, however, for illustration purposes only, based on today’s forecasts,
the price to produce and transport an acre foot of water would be approximately $960 per
acre foot ($860 in production costs, and approximately $100 in transportation costs). When
the MWD rebate of $250 per acre foot is deducted from this total cost, Carlsbad’s net cost
would be about $710 per acre foot. This is about $150 more per acre foot than the $560
per acre foot Carlsbad currently pays SDCWA for imported water.
Therefore for the purposes of this example, CMWD’s cost for water would increase by
about $750,000 per year ($150 per acre foot x 5,000 acre feet). Using the current cost of
imported water as a guide, CMWD’s current annual cost for imported water (assuming a
future total consumption of 20,000 acre feet per year) would be approximately $1 1.2 million
($560 per acre foot x 20,000 acre feet). The added cost of purchasing desalinated water
would increase CMWD’s total cost to $1 1.95 million, an increase of about 6.7%.
For SCCRA, the fiscal impact of the agreement is found largely in the financial guarantee
SDCWA has provided in the form of $5.5 million for the construction of mitigation and
related capital projects, and in limiting SCCRA’s loss in property tax revenue by providing a
guarantee of $15.3 million. SDCWA’s actual obligation to pay these funds would depend
on the term of private ownership and the flow of tax increment revenue to SCCRA.
EXHIBITS:
1. Resolution No. 2005-120 Approving the Agreement Memorializing Certain
Understandings and Establishing a Framework for Cooperation between the San
Diego County Water Authority and the City of Carlsbad, Carlsbad Municipal Water
District, and the Carlsbad Housing and Redevelopment Agency.
2. Agreement Memorializing Certain Understandings and Establishing a Framework for
Cooperation between the San Diego County Water Authority and the City of
Carlsbad, Carlsbad Municipal Water District, and the Carlsbad Housing and
Redevelopment Agency.
DEPARTMENT CONTACT: Jim Elliott, (760) 602-2409, email: jelli@ci.carlsbad.ca.us
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RESOLUTION NO. 2005-1 20
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, BOARD OF DIRECTORS OF THE CARLSBAD
MUNICIPAL WATER DISTRICT AND BOARD OF DIRECTORS OF
THE HOUSING AND REDEVELOPMENT COMMISSION
APPROVING THE “AGREEMENT MEMORIALIZING CERTAIN
UNDERSTANDS AND ESTABLISHING A FRAMEWORK FOR
COOPERATION” FOR A REGIONAL DESALINATION PROJECT
WITHIN THE SOUTH CARLSBAD COASTAL REDEVELOPMENT
PROJECT AND ADJACENT TO THE ENCINA POWER STATION
WHEREAS, the City Council, the Carlsbad Municipal Water District
and the Housing and Redevelopment Commission of the City of Carlsbad and the
County Water Authority have agreed to the terms and conditions of a framework for
cooperation for the future development of a Regional Desalination Project located
within the South Carlsbad Coastal Redevelopment Project on real property adjacent
to the Encina Power Station; and
WHEREAS, the Regional Desalination Project is planned to have a
capacity to produce and convey from approximately 50 million gallons per day to
100 million gallons per day of desalinated sea water; and
WHEREAS, Cabrillo Power 1, LLC is the owner of the power plant
and property which includes the proposed desalination project site; and
WHEREAS, the Carlsbad Municipal Water District and Poseidon
Resources (Channelside) LLC have reached an agreement on October 19,2004 for
water purchases from a privately owned project; and
WHEREAS, the County Water Authority wishes to develop a Regional
Desalination Project at the same location; and
Resolution No. 2005-120 Page 1 of 3
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WHEREAS, the intent of the Agreement is to specify the rights,
privileges and responsibilities of the public parties in the event the County Water
Authority acquires all of the necessary and appropriate permissions proceed with a
Regional Desalination Project, and
WHEREAS, the City Council of the City of Carlsbad, the Board of
Directors of the Carlsbad Municipal Water District and the Board of Directors of the
Housing and Redevelopment Commission of the City of Carlsbad, California have
carefully reviewed and considered the proposed Agreement,
NOW, THEREFORE, BE IT RESOLVED by the City Council of the
City of Carlsbad, the Board of Directors of the Carlsbad Municipal Water District
and the Board of Directors of the Housing and Redevelopment Commission of the
City of Carlsbad, California, as follows:
1. The above recitations are true and correct.
2. The “Agreement Memorializing Certain Understandings and
Establishing a Framework for Cooperation” attached hereto as Exhibit A, is hereby
approved.
3. The City Manager/ Executive Director/ Executive Manager is
hereby authorized to execute the “Agreement”.
4. The Planning Director is directed to file a Notice of Exemption
pursuant to the California Environmental Quality Act for this Agreement.
5. The City Clerk is directed to forward a copy of this Agreement to
the Board of Directors of the San Diego County Water Authority for its approval.
Resolution No. 2005-120 Page 2 of 3 ’4
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PASSED, APPROVED AND ADOPTED at a regular meeting of the City
Council, the Board of Directors of the Carlsbad Municipal Water District and the
Board of Directors of the Housing and Redevelopment Commission of the City of
Carlsbad held on the & day of April , 2005 by the following vote, to wit:
AYES:
NOES:
ABSENT:
ATTEST:
Council Mem herd Board Members/ Commissioners
Lewis, Hall, Kulchin, Packard and Sigafoose
None
Wh&dWQF)D, City ClerWSecretary
City Clerk/Secretary
Resolution No. 2005-120
Page 3 of 3
AGREEMENT MEMORIALIZING CERTAIN UNDERSTANDINGS
AND ESTABLISHING A FRAMEWORK FOR COOPERATION
Entered Into
By and Among
The San Diego County Water Authority,
The City of Carlsbad,
The Carlsbad Municipal Water District,
And
The Carlsbad Housing and Redevelopment Commission
April 28,2005
AGREEMENT MEMORIALIZING CERTAIN UNDERSTANDINGS AND
ESTABLISHING A FRAMEWORK FOR COOPERATION
This agreement (“Agreement”) is entered into as of April 28,2005 by and among
the San Diego County Water Authority, a county water authority (the “Water
Authority”), the City of Carlsbad, a municipal corporation (the “City”), the Carlsbad
Municipal Water District, a municipal water district (the “District”), and the Carlsbad
Housing and Redevelopment Commission (the “RDA”).
RECITALS
A. The Water Authority currently is considering acquiring, constructing,
developing, owning, operating or controlling a regional seawater desalination project
creating regional benefits by adding an additional supply of water to meet the expanding
and increasing needs of its member agencies (“Regional Desalination Project”). The
Regional Desalination Project is proposed to be located in the City within the South
Carlsbad Coastal Redevelopment Project (the “Redevelopment Project Area“), on real
property (the “Plant Site”) adjacent to the Encina Power Station (“Power Plant”), all of
which are shown for convenience on Exhibit “A,” The precise location of the Plant Site
for the Regional Desalination Project is subject to hture determination following
environmental review. The Regional Desalination Project is proposed to consist of a
seawater desalination plant (the “Plant Facilities”) on the Plant Site, and conveyance
assets on and off the Plant Site, including without limitation pipelines, pump stations and
other facilities necessary or convenient for the use, conveyance, storage, and distribution
of desalinated seawater (the “Appurtenant Facilities”). The Regional Desalination Project
is planned to have the capacity to produce and convey from approximately 50 million
gallons per day (“MGD”) to 100 MGD of desalinated seawater, but the scope of the
project is subject to further refinement following completion of environmental review.
The Regional Desalination Project may be a public project or a project developed under a
publidprivate contract arrangement.
B. Cabrillo Power 1, LLC (“Cabrillo”), as owner of the Power Plant and
property that includes the Plant Site, and Poseidon Resources (Channelside) LLC
(“Poseidon”), as developer, have submitted an application to the City for land use and
other permits to develop and build a private desalination project at a particular location
Poseidon has designated at the Plant Site. Environmental review documents for the
private desalination project are currently being prepared pursuant to the City’s land use
and environmental regulations and policies. On or about October 19,2004, Poseidon and
the District entered into a Water Purchase Agreement (the “Poseidon Water Purchase
Agreement”), pursuant to which Poseidon agreed to supply to the District, and the
District agreed to buy from Poseidon, all of the District’s daily requirements up to 25
MGD, or 28,000 acre feet per year, on a variable demand basis from the private
desalination project. A copy of the Poseidon Water Purchase Agreement is included for
convenient reference as Exhibit “B.”
Page 1 of 14
C. This Agreement is intended solely to commit the parties with respect to
certain intergovernmental, financial and other matters relating to the Regional
Desalination Project, if the Water Authority, at its sole discretion following completion of
environmental review determines to proceed with that project. Except as otherwise
specifically provided by its terms, this Agreement is not intended, and shall not be
construed to require any party to make any particular governmental decision to proceed
with the Regional Desalination Project. Further, this Agreement does not anticipate a
party will default on, breach or otherwise fail to perform any governmental or contractual
duty imposed by law or other pre-existing contract. Without limiting the generality of the
foregoing, this Agreement is intended to promote the public interest by defining the
relationship, rights and obligations of the Water Authority, the City, the District and the
RDA with respect to a Regional Desalination Project on the Plant Site or at the Power
Plant, should the Water Authority acquire ownership thereof or a possessory interest
therein, contractually or otherwise, and nothing in this Agreement is intended to affect in
any manner whatsoever the District’s obligations under, and the District intends to
continue to perform, the Poseidon Water Purchase Agreement with respect to a private
desalination project.
D. As public agencies, the parties each are responsible to act in furtherance of
the public interest, to protect the public health safety and welfare, and acknowledge that
the public’s business is best served by open exchange of public information and the
conduct of the public’s business in open public meetings. The parties acknowledge that
open competitive procurement of public projects protects the public interest and provides
assurances of fiscal responsibility. The parties acknowledge that sharing of project
information furthers the statewide policy of open local government decision-making.
The parties acknowledge that regional water supply reliability requires facilities be
designed and constructed to provide service over many decades of operation and that the
Water Authority, as the regional water provider, has a special interest in assuring
construction quality through design and inspection.
E. The parties also recognize that differing local and regional perspectives
and interests regarding the Regional Desalination Project should be harmonized to the
greatest reasonable extent. The parties acknowledge that a Regional Desalination Project
that incorporates the public policy objectives outlined in this Agreement further local and
regional public interests and will provide a long-term, cost effective water supply
resource.
F. On August 12,2004 the Water Authority Board of Directors took action
(the August 2004 Board Action”) to: 1) Direct staff to negotiate an Inter-Agency
Agreement with the City, the District and the RDA regarding coordination and mitigation
for the Regional Desalination Project; 2) Authorize staff to complete the Environmental
Impact Report (“EIR) for the Regional Desalination Project at the Plant Site and to seek
voluntary access to the site with the clear understanding that nothing in this action is
intended to authorize or suggest acquisition of Poseidon or Cabrillo’s property interests
by eminent domain; 3) Direct staff to enter into discussions with Cabrillo, as the site host
and owner of the Power Plant, to understand the status of Cabrillo’s interests, goals and
Page 2 of 14
objectives relative to a municipal water supply project on the Power Plant, the status of
its business relationship with Poseidon and areas of joint cooperation; 4) Direct staff to
begin discussions with the City, the District, the RDA, Poseidon and Cabrillo on the
potential structuring of a public-private partnership for a Regional Desalination Project at
the Plant Site; 5) Reaffirm the Water Authority’s support for local supply development as
stated in the February 25,2004 letter from Chairman Rhinerson to Mayor Lewis; and 6)
Direct staff to place the Regional Desalination Project at the Plant Site as an action item
on each month’s Board agenda. This Agreement accomplishes the direction to Water
Authority staff to negotiate an Inter-Agency Agreement. The previous Licensing
Agreement among the Water Authority, Cabrillo and Poseidon has accomplished the
direction to obtain voluntary access for purposes of completing the EIR for the Regional
Desalination Project. The parties intend to cooperate in good faith, consistent with this
Agreement, to achieve the remaining objectives stated in the August 2004 Board Action.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties hereto hereby agree as follows:
OPERATIVE PROVISIONS
1. - Term. The term of this Agreement shall commence on the date it is fully
executed and, if the Water Authority implements the Regional Desalination Project, shall
continue for a period of 30 years following first delivery of the District’s Local Water as
provided in Paragraph 2. If the Water Authority implements the Regional Desalination
Project, and if the Water Authority intends to continue operation of the Regional
Desalination Project upon expiration of the initial 30-year term, the Water Authority will
provide the District with written notice of intent to continue operation stating the duration
of the anticipated continued operation. The District shall have 90 days after the date of
the notice to state in writing whether it desires to continue the purchase of the District’s
Local Water as provided in Paragraph 2 for the duration of the continued operation. If
the Water Authority thereafter determines to continue operation of the Regional
Desalination Project, the term of this Agreement will be extended for continued delivery
of the District’s Local Water under Paragraph 2 for the duration of the Water Authority’s
continued operation of the Regional Desalination Project.
2. Purchase of Regional Desalination Proiect Water. If the Water
Authority implements the Regional Desalination Project, then each year that water is
produced, the Water Authority will sell to District, and District will buy from the Water
Authority desalinated water in an equal annual amount of not more than 5,000 acre feet to
be fixed by the District. Not later than the commencements of construction of the
Regional Desalination Project or the date of adoption by the Water Authority board of
directors of a drought allocation plan or methodology, the District will make a single
determination fixing the amount of water it will purchase on an annual basis and will
notify the Water Authority of that amount. The water purchased by the District pursuant
to this provision shall be deemed and designated as the “District’s Local Water” and is
Page 3 of 14
additional to any water the District may receive as a member agency of the Water
Authority. In consideration of the District’s determining, fixing, and limiting the
amount of District’s Local Water, the Water Authority will pay to the District $296,000
at the time it makes the payments described in Paragraph 7. The provisions of this
Agreement shall be the exclusive means by which the District, the City and the RDA
meet their local water reliability objectives from the Regional Desalination Project. If the
District desires to achieve water reliability objectives by other methods, the District may
participate in Water Authority programs and receive Water Authority assistance,
including without limitation assistance in obtaining variable supplies of water from the
State Drought Bank, contractual arrangements for dry-year option transfers, spot market
transfers or storage of water by another member agency for the District’s account, under
the same considerations as apply to other Water Authority member agencies. The
District’s Local Water may be blended with other Water Authority supplies before
delivery to the District. The manner of delivery of the District’s Local Water and other
water of the Water Authority, including without limitation desalinated water from the
Regional Desalination Project, shall be determined by the Water Authority subject to the
provisions of Paragraph 5.
3. Purchase Price. The price per acre foot of desalinated water purchased
by the District as provided in Paragraph 2 will be set, from time to time, by the Water
Authority at an open public meeting. The price will be based on (a) the component of the
Water Authority’s supply charge set to recover the Water Authority’s cost for the Plant
Facilities, including, without limitation, capital, debt service, acquisition, operation,
maintenance, depreciation, reserves for replacements, mitigation, assistance,
development, and other project costs, before melding with the costs of other Water
Authority supplies, and (b) a conveyance charge based upon a mutually approved
engineering analysis of either (i) the cost of hypothetical facilities to deliver the District’s
Local Water from the Plant Facilities to the District’s distribution facilities, or (ii) the
cost of the portion of the Appurtenant Facilities attributable to delivery of the District’s
Local Water based upon the proportion that the District’s Local Water bears to the total
amount of water produced at the Regional Desalination Plant. The method for
determining the conveyance charge will be selected by the parties before the first delivery
of any of the District’s Local Water. The conveyance charge shall not be less than the
transportation rate under the Water Authority’s rate structure. The pricing principle is
intended to collect from the District the full cost of the District’s Local Water and of the
facilities to convey that water from the Plant Facilities to the District’s distribution
facilities within the District’s territory. The price of the District’s Local Water will be
billed and paid on a per acre foot basis in the same manner as for other water the Water
Authority provides to the District.
4. Metropolitan Water District and Other External Funds. The Water
Authority shall be the applicant for and recipient of funds, if any, provided by the
Metropolitan Water District of Southern California (“MWD”). If MWD funds are
received, the Water Authority will provide the District with a benefit proportional to the
amount of Local District Water delivered to the District to the total of all water delivered
by the Water Authority from the Regional Desalination Project for those years when
MWD funds are received by the Water Authority. For example, if MWD provides
Page 4 of 14
funding for 50,000 acre feet per year of production capacity and the District’s Local
Water is fixed at 5,000 acre feet per year, the Water Authority would receive 90 % and
the District 10 % of the benefit from MWD funds. If MWD funds are not provided, then
the District may, but is not obliged to acquire District’s Local Water. If the Water
Authority determines to proceed with the Regional Desalination Project and with another
seawater desalination facility, it agrees that it will apply any MWD funds for desalination
first to the Regional Desalination Project up to its design capacity, before applying the
funds to any other seawater desalination facility. To the extent federal, state, regional or
other external funding is made available in support of a seawater desalination project in
the City of Carlsbad, or in support of any project identified in Exhibit D, the funding will
be used to reduce the cost of the Regional Desalination Project, or the amount of the
RDA Project Payments regardless of the agency that receives the funds and the Water
Authority will provide a similar benefit to the District as described in this paragraph for
MWD funds.
5. Deliverv. If water from the Regional Desalination Project is piped to the
Water Authority’s Twin Oaks diversion structure, or other like facility, and blended with
other Water Authority water before distribution, no special water quality issues need to
be addressed. If desalinated water is delivered directly to the District’s water system, the
protocols described in Exhibit C shall apply.
6. Land Use and Construction Atmrovals. The City agrees to
expeditiously process a Water Authority request for a report pursuant to Government
Code Section 65402, subdiv. (c) for the Regional Desalination Project. The City, RDA
and Water Authority agree that a coastal development permit is required for the Regional
Desalination Project. The City has provided the Water Authority with a copy of Chapter
1 1.16 of the Carlsbad Municipal Code governing use of city streets and rights of way.
The City and the Water Authority agree the requirements that City imposes on itself or on
the District for excavations, refilling of excavations, relaying of pavement and protection
of the public during periods of construction within the City’s streets and highways are
reasonable and the Water Authority will comply with those requirements. The Water
Authority also agrees that in addition to reasonable inspection fees, its will pay
reasonable plan check fees to the City. Due to the local interest this Agreement creates
in, and the public nature of, the Regional Desalination Project, the City will favorably
adjust its normal and customary fees for reviewing, approving and inspecting
encroachments within its streets and highways.
The RDA contends it has jurisdiction over the Regional Desalination Project
insofar as such project may create impacts within the Redevelopment Project Area, and
the Water Authority disputes this contention. The Water Authority contends that the
Regional Desalination Project is exempt from the rules and regulations of the RDA, and
the RDA disputes this contention. To resolve this dispute, each party, without admitting
or conceding any authority or jurisdiction, agrees that, with respect to the Regional
Desalination Project ; (a) the Water Authority will submit construction and site
development plans for the Regional Desalination Project to the RDA for review and
comment as to conformity with the RDA’s design regulations applicable to public agency
Page 5 of 14
and public utility projects; (b) if comments call for revisions to the construction or site
development plans, for impacts that are not described on Exhibit “E,” the Water
Authority will consider in good faith potential revisions to construction and site
development plans to address any comments; (c) if the Water Authority initially
determines that it will not make a revision to address a comment, the Water Authority
and RDA will meet and consult to resolve the dispute within a reasonable time; and (d) if
the parties cannot resolve their dispute, then each party shall have against each other
party all rights, claims, defenses and remedies available at law or equity with respect to
such dispute.
Other than the coastal development permit, no other land use, building or other
regulatory permit or approval of the City or RDA is required. The City agrees that the
Water Authority’s RDA Projects Payment under Paragraph 7 satisfy any conditions
imposed pursuant to any coastal development permit for the Regional Desalination
Project regarding the same subject or improvement.
7.
authorized to assist in the implementation of the RDA’s South Carlsbad Coastal
Redevelopment Area Plan pursuant to Health and Safety Code Section 33220. The
parties also agree that development of the Regional Desalination Project has reasonably
foreseeable, unique impacts on the City and the RDA due to its co-location with another
regional public utility facility and the potential that the Regional Desalination Project
may become hlly or partially exempt from property taxes. In order to offset these
impacts the Water Authority, City and RDA have agreed upon an amount of
$15,294,568, which is designated as the “RDA Contribution,” and upon the amount of
$5,500,000, which is designated as the “RDA Projects Payment.” The Water Authority
will make the RDA Projects Payment within 30 days of the date when both (i) the Water
Authority has acquired ownership of the Plant Facilities such that the property is exempt
from property taxes in whole or in part, and (ii) construction on the Regional
Desalination Project has commenced. The Water Authority will pay the RDA
Contribution to the RDA within 30 days of the date when both (i) the Water Authority
has acquired ownership of the Plant Facilities such that the property is exempt from
property taxes in whole or in part, and (ii) the Regional Desalination Project is built and
lawfully able to deliver water to the Water Authority’s system. The RDA Contribution
will be reduced if there are any tax-increment payments received by the RDA on account
of any private desalination project at the Plant Site, or private ownership or possessory
interest in the Regional Desalination Project. The amount of the reduction will be based
on the sum of the discounted stream of annual tax increment payments. The annual
discount rate is 5.2%, and the discount will be calculated beginning on the date upon
which the RDA receives its first tax payment. An example of this calculation is provided
in Exhibit “D.” The RDA agrees to use the RDA Projects Payment for community
enhancements and needs within the Redevelopment Area as more particularly set forth on
Exhibit “E.” The District, City and RDA agree that the payments under this paragraph
and Paragraph 2 are in lieu of participation by any of them in any other or further funding
program of the Water Authority with respect to the Regional Desalination Project at the
Plant Site, and the parties acknowledge that, except for any program applicable to the
MitiPation and RDA Assistance. The parties agree that the Water Authority is
Page 6 of 14
Regional Desalination Project at the Plant Site, the District, City and RDA shall not be
excluded from programs that are provided to all members of the Authority in the normal
conduct of business of the Authority.
8. Environmental Review. The parties acknowledge that the Authority
currently is preparing an environmental impact report for the Regional Desalination
Project under the California Environmental Quality Act (“CEQA”) and that the City is
preparing or causing to be prepared an environmental impact report for a private
desalination project at the Plant Site. The Water Authority and the City agree to consult
and closely coordinate with each other in the preparation of the respective environmental
impact reports for the Regional Desalination Project and the private desalination project.
If at any time, the Water Authority, the City, and other interested parties as defined in the
CEQA mutually determine to have one environmental impact report covering both
projects, then City and the Water Authority agree that the Water Authority will be the
lead agency and the City will be a responsible agency for that single environmental
impact report.
9. SONGS. The parties acknowledge that the Authority is currently
evaluating a seawater desalination opportunity at the San Onofie Nuclear Generating
Station (“SONGS”), has completed an initial feasibility study and has presented the
findings of that study to the Commanding General of the Marine Corps Base, Camp
Pendleton, CA. With the concurrence of the Commanding General, the Authority has
determined to proceed with a more detailed feasibility and planning study. The parties
acknowledge that a desalination project at the Plant Site and a desalination project at
SONGS have the potential to provide collectively 130 MGD to 200 MGD of new source
water for San Diego County. The City and the District support the Authority’s continued
evaluation of a seawater desalination facility at SONGS.
10. Process.
10.1 Subsequent Activities. Within 30 days of the execution of this
Agreement, consistent with the August 2004 Board Action, Water Authority staff will
offer to enter into discussions with (a) Cabrillo, as the site host and owner of the Power
Plant, to understand the status of Cabrillo’s interests, goals and objectives relative to a
municipal water supply project on the Power Plant, the status of its business relationship
with Poseidon and areas of joint cooperation, and (b) the City, the District, the RDA,
Poseidon and Cabrillo on the potential structuring of a public-private partnership for a
Regional Desalination Project at the Plant Site.
10.2 Desimation of Sub-Committees. If within 18 months of the execution of
this Agreement, the Water Authority has not taken final action to implement the Regional
Desalination Project, then upon request of the City, the Water Authority will designate a
two member sub-committee of its board of directors to meet with a two member sub-
committee of the City Council of the City for the purpose of determining strategies to
advance a desalination project at the Plant Site.
Page 7 of 14
10.3 Water Authority Determination Not to Proceed. If the Water Authority
makes a final decision not to proceed with the Regional Desalination Project at the Plant
Site, then the Water Authority will assist the District and any other Water Authority
member agency interested therein to facilitate a local desalination project at the Plant
Site. Such local desalination project may be structured through means that include a
public-private partnership. Water Authority assistance shall include applying to the local
desalination project any MWD funds received for desalination or designating the District
as the proponent of a local desalination project for receipt of any MWD funds. The
assistance will be provided not later than 6 months after the final decision not to proceed
with the Regional Desalination Project. The Water Authority’s obligation for assistance
is subject to permits and financing being obtained and construction commenced on the
local project on or before October 1,2008. Failure of the Water Authority to make a
decision to proceed or not proceed on or before October 1,2008 will be deemed a final
decision not to proceed with the Regional Desalination Project. The October 1,2008 date
may be extended by agreement of the parties.
1 1. Miscellaneous Provisions.
1 1.1 Imdementation. Each party’s performances required by the provisions
of this Agreement shall be undertaken in good faith, and with all parties dealing fairly
with one another. Each party agrees to execute any further documents consistent with the
terms of this Agreement as any other party may from time to time find necessary to
appropriately effectuate the purposes of this Agreement. Nothing in this Agreement is
intended to limit or control the exercise of legislative or administrative authority of the
City, the District or the RDA, or any of their respective legislative bodies, officers or
employees with respect to the private desalination project referred to in Recital B.
Nothing in this Agreement is intended to affect in any manner whatsoever the District’s
obligations under the Poseidon Water Purchase Agreement.
1 1.2 Entire APreement. This Agreement constitutes the entire understanding
among the parties with respect to the matters set forth herein, and supersedes all prior or
contemporaneous understandings or agreements among the parties with respect to the
subject matter hereof, whether oral or written.
1 1.3 Non-severability. The covenants and obligations of each party constitute
consideration for the covenants and obligations of the other parties and that the
provisions of this Agreement cannot be severed one from the other without affecting the
respective and mutual benefits to be obtained by the parties from enforcement of the
Agreement as a whole.
1 1.4 Amendment. Neither this Agreement nor any of its provisions may be
waived, modified, amended, discharged, or terminated except by an instrument in writing
signed by the party against which the enforcement of such waiver, modification,
amendment, discharge or termination is sought, and then only to the extent set forth in
such writing.
Page 8 of 14
1 1.5 Construction. This Agreement constitutes a fully-negotiated agreement
among commercially sophisticated parties, each assisted by legal counsel, and the terms
of this Agreement shall not be construed or interpreted for or against any party hereto
because that party or its legal representative drafted or prepared such provision.
Headings, titles and captions are for convenience only and shall not be used for the
interpretation of the provisions of this Agreement.
11.6 ControllinP Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of the State of California, without giving
effect to any choice-of-law or conflicts-of-laws rule or principle that would result in the
application of any other laws.
1 1.7 Notices. Any notice, approval, consent, waiver or other communication
required or permitted to be given or to be served upon any party in connection with this
Agreement shall be in writing. Such notice shall be personally served, sent by facsimile,
sent prepaid by registered or certified mail with return receipt requested, or sent by
reputable overnight delivery service, such as Federal Express, and shall be deemed given:
(a) if personally served, when delivered to the Party to whom such notice is addressed;
(b) if given by facsimile, when sent, provided that the confirmation sheet from the
sending fax machine confirms that the total number of pages were successfully
transmitted; (c) if given by prepaid or certified mail with return receipt requested, on the
date of execution of the return receipt; or (d) if sent by reputable overnight delivery
service, such as Federal Express, when received. Such notices shall be addressed to the
party to whom such notice is to be given at the address specified below or as such party
shall otherwise direct in writing to the other parties delivered or sent in accordance with
this paragraph. The "copy to" notice to be given as set forth below is a courtesy copy
only; a notice given to such person is not sufficient to effect giving a notice to the
principal party, and a failure to give such a courtesy copy of a notice does not constitute a
failure to give notice to the principal party.
If to the Authority:
With a copy to:
If to the City:
San Diego County Water Authority
4677 Overland Avenue
San Diego, CA 92123
ATTN: General Manager
San Diego County Water Authority
4677 Overland Avenue
San Diego, CA 92123
ATTN: General Counsel
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
ATTN: City Manager
Page 9 of 14
With a copy to:
If to the District:
If to RDA:
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
ATTN: City Attorney
Carlsbad Municipal Water District
1200 Carlsbad Village Drive
Carlsbad, CA 92008
ATTN: Executive Director
Carlsbad Housing and Redevelopment
Commission
1200 Carlsbad Village Dr.
Carlsbad, CA 92008
ATTN: Executive Director
1 1.8 Cumulative RiPhts; Waiver. The rights created under this Agreement, or
by law or equity, shall be cumulative and may be exercised at any time and from time to
time. No failure by any party to exercise, and no delay or omission by any party in
exercising any rights, shall be construed or deemed to be a waiver thereof, nor shall any
single or partial exercise by any party preclude any other or future exercise thereof or the
exercise of any other right. Any waiver of any provision or of any breach of any
provision of this Agreement must be in writing, and any waiver by any party of any
breach of any provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of that provision or of any breach of any other provision of
this Agreement. The failure of any party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered or construed or deemed
a waiver of any provision or any breach of any provision of this Agreement or deprive
that party of the right thereafter to insist upon strict adherence to that term or provision or
any other term or provision of this Agreement.
1 1.9 Audit Riphts. The District may, not more frequently than once during
each calendar year, at its own cost and expense, cause all books and records of the Water
Authority that are applicable to the matters described in Paragraph 2,3 and 4 (the
"Records") to be audited by a public or certified public accountant selected by the District
(the "Accountant"); provided, however, that notwithstanding the foregoing, the District,
at its expense, shall have the right to cause the Records to be audited at any time if the
District has a reasonable, good-faith belief that some irregularity exists in the Records
related to the construction, maintenance or operation of the Regional Desalination
Project. Upon receipt of written notice by the District of election for such an audit, the
Water Authority shall permit the Accountant to have access to and to review all Records.
Thereafter, the Water Authority, at the expense of the District, shall copy or cause to be
copied the portions of all such Records identified by the Accountant, and shall deliver or
cause to be delivered to the District the copies so made within ten (10) business days of
the date the Accountant identifies such Records for copying. Notwithstanding the
Page 10 of 14
foregoing, the Water Authority shall promptly on demand reimburse the District for: (a)
the full amount of any overpayment of the Purchase Price; plus (b) the full cost and
expense of the audit if the audit discloses that the Authority understated the funds
received from MWD or from any federal, state, regional or other external funding sources
by five percent (5%) or more. The Water Authority shall maintain the Records in
accordance with generally accepted accounting principles consistently applied. The
Water Authority shall retain such Records for each fiscal year during which the District
purchases Product Water for at least three (3) years from the close of such fiscal year;
provided, however, that if a dispute shall arise concerning the funds received from MWD
or from any federal, state, regional or other external funding sources, then the Records
shall be retained by the Water Authority until a final resolution of such dispute.
The Water Authority may, not more frequently than once during each calendar
year, at its own cost and expense, cause all books and records of the RDA that are
applicable to the matters described in Paragraph 7 or of the RDA, City or District
applicable to payments received by any of them under Paragraph 4 (the "Carlsbad
Records") to be audited by a public or certified public accountant selected by the Water
Authority (the "Water Authority Accountant"); provided, however, that notwithstanding
the foregoing, the Water Authority, at its expense, shall have the right to cause the
Carlsbad Records to be audited at any time if the Water Authority has a reasonable, good-
faith belief that some irregularity exists in the Carlsbad Records. Upon receipt of written
notice by the Water Authority of election for such an audit, the RDA, City or District, as
applicable, shall permit the Accountant to have access to and to review all Carlsbad
Records. Thereafter, the RDA, City or District, at the expense of the Water Authority,
shall copy or cause to be copied the portions of all such Carlsbad Records identified by
the Accountant, and shall deliver or cause to be delivered to the Water Authority the
copies so made within ten (1 0) business days of the date the Accountant identifies such
Carlsbad Records for copying. Notwithstanding the foregoing, the RDA, City or District,
as appropriate, shall promptly on demand reimburse the Water Authority for: (a) the full
amount of any overpayment; plus (b) the full cost and expense of the audit if the audit
discloses that the RDA, City or District understated the funds received from MWD or
from any federal, state, regional or other external funding sources by five percent (5%) or
more. The RDA, City and District shall maintain the Carlsbad Records in accordance
with generally accepted accounting principles consistently applied. The RDA, City and
District shall retain the Carlsbad Records for at least three (3) years from the date the
record could otherwise be destroyed under applicable law, however, that if a dispute shall
arise concerning the funds received under Paragraph 4 or Paragraph 7, then the Carlsbad
Records shall be retained by the Water Authority until a final resolution of such dispute.
1 1.10 No Third Partv Beneficiaries. This Agreement does not create, and shall
not be construed to create, any rights enforceable by any person, partnership, corporation,
joint venture, limited liability company or other form of organization or association of
any kind that is not a party to this Agreement.
1 1.1 1 Execution in Counterparts; Facsimile Signatures. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but all of
Page 11 of 14
which together shall constitute one and the same instrument. The signature page of any
counterpart may be detached therefrom without impairing the legal effect of the
signature(s) thereon, provided such signature page is attached to any other counterpart
identical thereto except for having an additional signature page executed by the other
party. Each party agrees that the other parties may rely upon the facsimile signature of a
party on this Agreement as constituting a duly authorized, irrevocable, actual, current
delivery of this Agreement as fully as if this Agreement contained the original ink
signature of the party supplying a facsimile signature.
1 1.12 Time of the Essence. Time is of the essence of each and every provision
of this Agreement.
1 1.13 Authoritv. Each party shall deliver to the other parties copies of such
resolutions, certificates or written assurances evidencing authorization to execute, deliver
and perform this Agreement.
1 1.14 Number, Gender. Where a word or phrase is defined in this Agreement,
its other grammatical forms have a corresponding meaning. As used herein, and as the
circumstances require, the plural term shall include the singular, the singular shall include
the plural, the neuter term shall include the masculine and feminine genders, the
masculine term shall include the neuter and the feminine genders, and the feminine term
shall include the neuter and the masculine genders.
1 1.15 Relationshim Nothing in this Agreement shall be deemed to constitute
either party a partner, agent or legal representative of the other party. No liability or
benefits, such as workers' compensation, pension rights or liabilities, other provisions or
liabilities arising out of or related to a contract for hire or employer/employee
relationship, shall arise or accrue to any party's agent or employee as a result of this
Agreement or its performance. Each party is responsible for own acts and omissions, and
the acts or omissions of its respective officers, employees and agents.
1 1.16 Defense. The parties agree to cooperate to defend this Agreement by any
person or entity that is not a party to this Agreement, provided, however, that each party
shall bear its own attorneys' fees and costs, unless the parties otherwise agree.
1 1.17 mment. The City, District or RDA may not assign this Agreement or
any of their respective rights, interests, or obligations under it without the prior written
consent of the Water Authority. The Water Authority may not assign this Agreement or
any of its rights, interests, or obligations under it without the prior written consent of the
City, District and RDA. Consent under this paragraph will not be unreasonably withheld
or delayed. Subject to the foregoing restrictions, the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of all affiliates, subsidiaries,
assigns, and successors-in-interest of the parties.
Page 12 of 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"AUTHORITY"
San Diego County Water Authority
Maureen'A. hplebp
General Manager .
"CITY"
City of Carlsbad h
Crty Manager
"RDA"
Carlsbad Housing and Redevelopment
Commission
Evxecutive Director
"DISTRICT"
Carlsbad Municipal Water District
Egcutive Manager
(SIGNATURES CONTINUED ON NEXT PAGE)
Page 13 of 14
Approval as to Form for City, District and RDA:
By: Q-R-
R’;Jnald R. Ball
City Attorney and General Counsel $& 2a 06.
General Counsel
Page 14 of 14
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO 4
CARLSBAD MUNICIPAL WATER DISTRICT
c/o City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Attn: City Attorney
Exempt from recording fees pursuant to
California Government Code Section 27383
WATER PURCHASE AGREEMENT
Entered Into
By and Between
The Carlsbad Municipal Water District,
And
Poseidon Resources (Channelside) LLC
September 28,2004
DSMDB. 176O968.12A
1 . *
TABLE OF CONTENTS
RECITALS .................................................................................................................................... 1
OPERATIVE PROVISIONS ......................................................................................................... 2
1 . PURCHASE AND SALE OF CONTRACT CAPACITY ....................................................... 2
1.1 Contract Capacity ....................................................................................................... 2
1.2 District’s Daily Requirements .................................................................................... 2
2 . TERM ....................................................................................................................................... 3
2.1 Extension Terms ......................................................................................................... 3
2.2 Water Year, Defined ................................................................................................... 5
2.3 Termination Prior to the Commercial Operation Date ............................................... 5
3. PURCHASE PRICE ................................................................................................................. 6
3.1 Purchase Price ............................................................................................................. 6
3.2 Adjustments to the Base Price .................................................................................... 7
3.3 Time and Manner for Payments .................................................................................. 7
3.4 Take-if-Delivered Contract ......................................................................................... 8
3.5 Additional Amounts .................................................................................................... 8
4 . CONSTRUCTION .................................................................................................................... 8
4.1 Engineering. Procurement and Construction .............................................................. 8
4.2 Testing ........................................................................................................................ 9
5 . LEGAL ENTITLEMENTS ...................................................................................................... 9
6 . PROJECT OPERATION AND MAINTENANCE .................................................................. 9
6.1 Continuous Operation ................................................................................................. 9
6.2 Operations. Maintenance. Management and Repair ................................................... 9
6.3 Operation and Maintenance Manual ......................................................................... 10
7.1 Damage to the Project ............................................................................................... 10
7 . DAMAGE TO THE PROJECT. DISTRIBUTION SYSTEM TECHNICAL STUDIES ...... 10
7.2 Distribution System Technical Studies ..................................................................... 10
8 . WATER QUALITY ................................................................................................................ 13
8.1 Water Quality Issues ................................................................................................. 13
Quality Standards ..................................................................................................... 13
8.3 Finalization of Water Quality Specification for Boron ............................................ 14
8.2 Quality Standards, Compliance with Law, Pressure Parameters and Water
i
DSMDB.1760968.IU
.. 8.4 Distnct's Non-Acceptance ........................................................................................ 14
8.5 Compliance with Regulations on Water Quality ...................................................... 14
9 . DELIVERY OF WATER ....................................................................................................... 14
9.1 Delivery of Water ..................................................................................................... 14
9.2 Delivery Points ......................................................................................................... 15
9.3 Delivery Schedule ..................................................................................................... 15
9.4 Conveyance Losses ................................................................................................... 15
9.5 Meters and Records. ................................................................................................. 16
9.6 Reports ...................................................................................................................... 16
9.7 Liquidated Damages for Failure to Deliver .............................................................. 16
10 . PRIORITY FOR PROJECT WATER, PRICE REDUCTION ............................................. 17
9.8 District Failure to Accept Product Water ................................................................. 17
10.1 Priority .................................................................................................................... 17
10.2 Price Reduction .............................:........................................................................... 17
1 1 . USE OF MAERKLE RESERVOIR ..................................................................................... 18
11.1 Maerkle Lease ......................................................................................................... 18
1 1.2 Appurtenant Facilities ............................................................................................. 18
11.3 District's Obllgation ................................................................................................ 18
11.4 Pnnciples for Joint Use ........................................................................................... 18
..
..
..
12 . INSURANCE ........................................................................................................................ 18
12.1 Fo nn ........................................................................................................................ 19
12.2 District's Right to Procure ....................................................................................... 19
12.3 Deductibles, Excess Claims .................................................................................... 19
12.4 Additional Insureds ................................................................................................. 19
12.5 Waiver of Subrogation ............................................................................................ 20
12.6 Statement of Insurance ............................................................................................ 20
12.7 Primary Insurance for Additional Insureds ............................................................. 20
13 . CONDITIONS, ADDITIONAL ASSISTANCE .................................................................. 20
13.1 Poseidon's Conditions ............................................................................................. 20
13.2 District's Conditions ................................................................................................ 21
13.3 Additional Assistance ............................................................................................. 22
14 . DEFAULTS AND REMEDIES ........................................................................................... 22
DSMDB . 1760968.12A &% ii
14.1 Default by Poseidon ................................................................................................ 22
14.2 District's Remedies ................................................................................................. 23
14.3 Default by District .................................................................................................. 24
14.4 Poseidon's Remedies ............................................................................................... 25
14.5 Damages Recoverable ............................................................................................. 25
15.1 Orgarvzatron ............................................................................................................ 25
15.2 Authorization .......................................................................................................... 25
1 5.3 Enforceability .......................................................................................................... 25
15.4 Governmental Consents .......................................................................................... 25
15.5 No Litigation .......................................... ................................................................ 25
16 . REPRESENTATIONS AND WARRANTIES OF POSEIDON ........................................... 26
16.1 Organization ............................................................................................................ 26
16.2 Authonzatlon .......................................................................................................... 26
16.3 Enforceability., ........................................................................................................ 26
16.4 Governmental Consents .......................................................................................... 26
16.5 No Lihgatlon ........................................................................................................... 26
17 FORCE MAJEURE ............................................................................................................... 26
17.1 Defined .................................................................................................................... 26
17.2 Force Majeure Examples ........................................................................................ 26
17.3 Events Not Deemed Force Majeure ........................................................................ 27
17.4 Excused Performance .............................................................................................. 27
18 . RIGHT OF FIRST OFFER ................................................................................................... 27
18.1 Restriction on Transfer ........................................................................................... 27
18.2 Right of First Offer ................................................................................................. 28
19 . DISPUTE RESOLUTION ..................................................................................................... 28
................................... 15 . REPRESENTATIONS AND WARRANTIES OF THE DISTRICT 25 ..
15.6 No Conflict .............................................................................................................. 25
..
..
16.6 No Conflict .............................................................................................................. 26
20 . INDEMNITY ........... ............................................................................................................ 29
20.1 District's Indemnity ................................................................................................. 29
20.2 Poseidon's Indemnity .............................................................................................. 29
20.3 Indemnification Procedures .................................................................................... 29
iii \
DSMDB . 1760968.12A
21 . MISCELLANEOUS ............................................................................................................. 30
2 1.1 Further Actions ...................................................................................................... 30
21.2 Amendment ............................................................................................................ 30
2 1.3 Entire Agreement ................................................................................................... 31
2 1.4 Notices ................................................................................................................... 31
21.5 Controlling Law ..................................................................................................... 32
21.6 Headings ................................................................................................................ 32
21.7 Cumulative Rights; Waiver .................................................................................... 32
21.8 Liberal Construction ............................................................................................. 32
21.9 Severability ........................................................................................................... 32
2 1.10 Good Faith and Fair Dealing ........................................................ '. ....................... 32
2 1 . 1 1 No Third Party Beneficiaries ................................................................................ 32
2 1. 12 Execution in Counterparts; Facsimile Signatures ................................................. 33
21.13 Time ofthe Essence .............................................................................................. 33
2 1.14 Authority ............................................................................................................... 33
21.15 Number, Gender .................................................................................................... 33
21.16 Assignment ........................................................................................................... 33
2 1.17 Relationship .......................................................................................................... 34
2 1.18 Agreement Not a Discretionary Approval ............................................................ 34
2 1.19 Financing the Project ............................................................................................ 35
21.20 Project and Site Devoted to Public Use ............................................................... 35
2 1.2 1 Recordation of Agreement ................................................................................... 35
21.22 Security ................................................................................................................ 35
Schedules and Exhibits Attached
Schedule 3
Schedule 8.2
Schedule 12
Exhibit 13.2.9
Purchase Price
Quality Standards
Insurance
Development Agreement Term Sheet
DSMDB . 1760968.12A
iv
30
TABLE OF DEFINED TERMS
Section
Acceptance Deadline ............................................................................................................... 1 8.2.2
AcceDted Offer ......................................................................................................................... 1 8.2.2
Additional Amounts ...................................................................................................................... 3.5
Additional Insurance ...................................................................................................................... 12
Additional Payment ................................................................................................... Schedule 3 (4)
Agreement ......................................................................................................................... Preamble
Amlicable Laws ........................................................................................................................... 4.1
ADDUrteWt Facilities ................................................................................................................... 9.2
ADDurtenant Facilities Agreement ................................................................................................ 9.2
Authoritv .............................................................................................................. Schedule 3 (2) (b)
Avoided Water Cost .............................................................................................. Schedule 3 (2) (a)
Base Price .................................................................................................................................. 3.1.1
Boron ExDe rt ................................................................................................................................. 8.1
CEOA .................................................................................................................................. Recital E
Change In Law ........................................................................................................................... 3.2.2 C!& : Recital B
Commercial ODeration ................................................................................................................. 4.2
Commercial ODeration Date ......................................................................................................... 4.2
Committee ...................................................................................................................................... 19
Construction Permit Deadline .................................................................................................. ..2. 3.4
Consumer Plumbine Test ........................................................................................................... 7.2.2
Consumer Oualitv Standards ........................................................................................................ 8.5
Consumer Test ComDonents ...................................................................................................... 7.2.2
Contract CaDacitv .............................................................................................................. Recital C
Corrosion Advisorv Panel ......................................................................................................... .7. 2.4 - CPI ........................................................................................................................ Schedule 3 (1) (a)
Daw .......................................................................................................................................... 2 1.13
Deferred Pavment ................................................................................................ Schedule 3 (3) (b) Delivew Charge ........................................................................................................................ .3. 2.3
Deliverv Point ............................................................................................................................... 9.2
Deliverv Regime ........................................................................................................................... 9.3
Determination Date .................................................................................................................... 2.3.1
Develoument Ameement ........................................................................................................ .13. 2.9
Distribution System ................................................................................................................... 7.2.1
District ......................................................................................................... ; ..................... Preamble
District Event of Default ............................................................................................................. 14.3
District Indemnitees .................................................................................................................... 20.2
Effective Date .................................................................................................................... PreambIe
Existing Term ....................................................................................................................... 2.1.4 (c)
Extended Period ............................................................................................................................ 9.7 Extended Shortfall ................................................................................................................... 14.1.2
ADDrOVal Date ........................................................................................................................... 21.18
................................................................ ....................................................................
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Extension ODtion ....................................................................................................................... 2.1.1
Extension Term ........................................................................................................................ ..2 . 1.1
Force Majeure ............................................................................................................................. 17.1
Governmental Authoritv .................................................................................................................. 5
Initial Period ................................................................................................................................. 9.7
Interconnection Points .................................................................................................................. 9.2
IndeDendent Representative ........................................................................................................... 19
Lead Agency .................................................................................................................................... 5
Led Entitlements ........................................................................................................................... 5
LOC ........................................................................................................................................... 21 22
Losses .......................................................................................................................................... 20.1
Maerkle Lease ............................................................................................................................. 11.1
MGD ................................................................................................................................. Recital A
MWD ......................................................................................................................................... 3.1.2
New Citv Charaes ...................................................................................................................... 3.5.1
O&M Manual.. .............................................................................................................................. 6.3
Offer ........................................................................................... ; ............................................. 18.2.2
Option Exercise Notice ......................................................................................................... 2.1.4(c)
Other Avoided Charges ........................................................................................ Schedule 3 (2) (c)
Other Grants or Subsidies .......................................................................................................... 3.1.2
Qverdue Notice ............................................................................................................................. 3.3
Overdue Rate ................................................................................................................................ 3.3
Parties ................................................................................................................................. Preamble
Party ................................................................................................................................... Preamble
Performance Test ..................................... : .................................................................................... 4.2
Poseidon ............................................................................................................................. Preamble
Poseidon Event of Default .......................................................................................................... 14.1
Poseidon Indemnitees ................................................................................................................. 20.1
Product Water .................................................................................................................... Recital A
Product Water Causation Event .................................................................................................... 8.5
Proiect ................................................................................................................................ Recital A
Proiected Commencement Date ..................................................................................................... 12
ProDertv Interest .......................................................................................................................... 18.1
Prudent Industrv Practices ............................................................................................................ 4.1
Purchase ODtion .................................................................................................................... 2.l.qa)
Purchase Option Exercise Notice ......................................................................................... 2.1.q~)
Purchase ODtion Price ........................................................................................................... 2.1 S(d)
Purchase Option Term .......................................................................................................... 2.1.5(b)
Purchase Price ............................................................................................................................ 3.1.1
Oualitv Standards .......................................................................................................................... 8.2
Rate Structure Change ......................................................................................... Schedule 3 (2) (d) - RDA ................................................................................................................................................. 5
Reauest ..................................................................................................................................... 18.2.1
SDCWA Price ...................................................................................................... Schedule 3 (2) (b)
Securitv ..................................................................................................................................... 2 1 22
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DSMDB . I760968.12A 3d-
Separate Counsel ........................................................................................................................ -20.3
Shortfall ...................................................................................................................................... 10.1
Site ..................................................................................................................................... Recital B
Sta-In Ri.t ............................................................................................................................ 14. 2.3
Subsidy ...................................................................................................................................... .3. 1.2
Supplemental Agreements ............................................................................................................. 1.2
SuDDlemental CaDacitv ................................................................................................................. 1.2
Svstem Monitoring Plan ............................................................................................................ 7.2.3
Svstem Test ................................................................................................................................ 7.2.1
Svstem Test Components ........................................................................................................... 7.2.1
Term ................................................................................................................................................. 2
Threshold ...................................................................................................................................... 9.7
Tracking Account ................................................................................................. Schedule 3(3) (a)
Transfer ....................................................................................................................................... 18.1
Undelivered Water ........................................................................................................................ 9.8
Water Oualitv Issues ..................................................................................................................... 8.1
Water Year .................................................................................................................................... 2.2
Year Period .............................................................................................................................. 14.1.1
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DSMDB.1760968.IZA 33
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WATER PURCHASE AGREEMENT
This Water Purchase Agreement (“Agreement”), entered into as of this 28th day of
September, 2004 (the “Effective Date”), is made by and between the Carlsbad Municipal Water
District, a municipal water district (the “District”), and Poseidon Resources (Channelside) LLC,
a Delaware limited liability company (“Poseidon”) (the District and Poseidon sometimes
hereinafter are referred to collectively as the “Parties” and individually as a “Party”), with
respect to the following facts:
RECITALS
A. Based on technical, hcial, environmental and engineering studies it has
conducted since 1998, Poseidon has determined it is feasible to develop a reverse osmosis seawater
desalination plant (the “Project”) capable of delivering up to fifty (50) million gallons per day
(“MGD”) or 56,000 acre-feet annually, but not less than twenty-five (25) MGD or 28,000 acre-feet
annually, of desalinated water (‘Product Water“) meeting specified water quality standards.
B. The Project will be lacated at a site (the “Site“) owned by Cabrillo Power I
LLC in the City of Carlsbad (the “City”) and leased to Poseidon. The District provides domestic
water service to the City.
C. Poseidon desires to sell to the District, and the District desires to buy from
Poseidon, at wholesale, up to twenty-five (25) MGD of Product Water (as adjusted pursuant to this
Agreement, the “Contract Capacity”), pursuant to an arrangement where the appropriate risks of
development, construction and operation of the Project are borne by Poseidon and neither the
District nor the City has any liability with respect to the financing of the Project.
D. Through the series of contractual rights and obligations contained in this
Agreement (including but not limited to the District’s right to purchase Product Water from
Poseidon, the District’s right of first offer described in Section 18 of this Agreement, and the
District’s right to exercise the options described in Sections 2 and 14.2.2 of this Agreement) the
Parties intend to devote the Project and Poseidon’s interest in the Site to public use by the District
and the City to the extent of the Contract Capacity so that the Project and Site will be “appropriated
to public use” pursuant to Cal. Code of Civil procedure 0 1240.660.
E. Before the District can commit to purchase any Product Water, the District
must first comply with the California Environmental Quality Act (“CEQA”), compliance with which
is a condition precedent to the District’s obligation to purchase Product Water as set forth below.
As part of the City’s environmental analysis under CEQA, an Environmental Impact Report is
required to analyze the proposed Project including the contractual agreements with the District that
would be included in the Project for the purchase of Product Water from the Project. This
Agreement prior to the Approval Date (as defined herein), shall not constitute a “project” subject
to CEQA, and nothing in this Agreement prior to the Approval Date shall be construed under
Public Resources Code Section 21065 as (a) an activity undertaken by the District or any other
public agency, @)the support of any activity undertaken by a person (including without
1
DSMDB.1760968.12A
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limitation Poseidon) which is supported in whole or in part by any contract, grant, subsidy, loan
or other form of assistance fiom any public agency, or (c) any issuance to a person (including
without limitation Poseidon) of any lease, permit, license, certificate, or other entitlement for use
by any public agency.
F. Subject to the terms and conditions set forth below, Poseidon now desires to
contract with the District, and the District now desires to contract with Poseidon, for the purchase of
Product Water fiom the Project
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and
conditions contained herein, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties agree as follows:
OPERA= PROVISIONS
1. PURCHASE AND SALE OF CONTRACT CAPACITY.
1.1 Contract Capacity. Subject to all of the terms and conditions of this
Agreement, the District hereby agrees to buy the Contract Capacity fiom Poseidon, and Poseidon
hereby agrees to sell the Contract Capacity to the District, to be delivered in installments
pursuant to the Delivery Regime to be developed by the Parties pursuant to Section 9.
1.2 District’s Daily Requirements. Poseidon acknowledges that, by entering into
this Agreement, the District intends to purchase fiom the Project all of its daily requirements for
water (up to the Contract Capacity) and that the District currently has variable daily
requirements ranging from ten (10) MGD to twenty-five (25) MGD. Accordingly, in light of the
District’s variable requirements, the Parties acknowledge and agree that Poseidon shall use
commercially reasonable efforts to enter into mutually acceptable supplemental agreements with
third parties (the “Supplemental Agreements”) for up to fifteen (15) MGD of the Contract
Capacity. Pursuant to such Supplemental Agreements, Poseidon may sell up to fifteen (15)
MGD of the Contract Capacity otherwise reserved for the District under this Agreement (the
“Supplemental Capacity”) to third parties during periods when the District requires less than
twenty-five (25) MGD of Contract Capacity fiom the Project, and such Supplemental Capacity
shall otherwise be available to the extent necessary to satisfL the District’s requirements during
days the District requires more than ten (10) MGD of water. Poseidon agrees that: (a) in no
event shall Poseidon enter into Supplemental Agreements pursuant to which it agrees to sell
more than fifteen (15) MGD out of the Contract Capacity; and (b) on the terms and conditions
set forth in this Agreement, Poseidon shall at all times supply the District with Product Water
sufficient to meet its daily requirements up to the Contract Capacity. Poseidon further agrees
that during the Term the Project shall have the capacity to deliver at least twenty-five (25) MGD
of Product Water, and without the District’s prior written consent, Poseidon shall not enter into
any oral or written agreement, contract, instrument, undertaking or any other kind of
understanding whatsoever, which, individually or in the aggregate, shall preclude the District
fiom purchasing the Contract Capacity. The District shall have the right to review the regimes
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DSMDB. 1760968.12A
.
for the delivery of Product Water to third parties to confirm that such regimes do not adversely
affect the District's rights under this Agreement.
2. TERM. The term ("Term") of this Agreement shall commence on the Effective Date and
shall continue for a period of thirty years (30) after the Commercial Operation Date (defined in
Section 4.2 below), unless extended or sooner terminated in accordance with the provisions of
this Agreement. The District's obligation to purchase Product Water shall commence if and
when the Approval Date (as defined in Section 21.18) shall have occurred, and the conditions set
forth in Section 13.2 have been satisfied or waived by the District.
2.1 Extension Terms.
2.1.1 Extension Option. The District may, at the District's option (the
"Extension Option"), elect to extend the Term of this Agreement for two (2) consecutive
additional periods of thirty (30) years each (severally called "Extension Term"), subject to all the
provisions of this Agreement, provided that the Purchase Price for each Extension Term shall be
adjusted as provided in Section 2.1.4(c). Subject to the exercise of an Extension Option
becoming effective pursuant to Section 2.1.4(c), an Extension Term shall commence at the
expiration of the Term (or the first Extension Term as the case may be) and shall terminate on
the thirtieth (30th) anniversary of the date of commencement of that Extension Term, unless
sooner terminated as provided herein.
2.1.2 Failure to Exercise. If the District fails to exercise the Extension
Option for an Extension Term within the time provided in Section 2.1.4(c), then the Extension
Option herein granted for such Extension Term shall lapse and be of no further force or effect.
Failure to exercise the Extension Option for the first Extension Term shall nullify the Extension
Option for the second Extension Term.
2.1.3 References to "Term." After the exercise of any Extension Option, all
references in this Agreement to the "Term" shall be considered to mean the Term as extended,
and all references to termination or to the end of the Tern shall be considered to mean the
termination or end of the first or second Extension Term, as the case may be.
2.1.4 Conditions to Exercise. The District's right to the Extension Option are
subject to the following conditions:
(a) Agreement in Effect. This Agreement shall be in effect at the
time notice of exercise is given and on the last day of the Term (or the first Extension Term, as
the case may be).
(b) No Default. No District Event of Default shall have occurred and
be continuing at the time notice of exercise is given,
(c) Procedure. The District may notify Poseidon of its desire to
exercise the Extension Option for each Extension Term only by delivering Poseidon written
notice of such extension request (each such notice, an "Option Exercise Notice"). The District
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DSMDB.1760968. IU
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shall deliver the Option Exercise Notice at least forty-eight (48) months prior to the expiration of
the then-current term of the Agreement (the "Existing Term"). Promptly after delivery of the
Option Exercise Notice, the Parties shall commence negotiations in good faith on equitable
adjustments to the Purchase Price. If the Parties reach agreement on such adjustments no later
than twenty-four (24) months prior to the expiration of the Existing Term, the exercise of the
Extension Option shall be deemed effective. If the Parties do not reach agreement on such
adjustments by twenty-four (24) months prior to the expiration of the Existing Term, the exercise
of the Extension Option shall be deemed ineffective and the Agreement will terminate on the last
day of the Existing Term (unless otherwise agreed by the Parties).
2.1.5 District Purchase Option
(a) In the event that the District's exercise of the Extension Option is
deemed ineffective pursuant to Section 2.1.4(c), the Parties hereby agree that the District shall
have an option (the "Purchase Option") but not the obligation to purchase the Project in
accordance with the terms and conditions set forth herein.
@) Option Term. The term of the Purchase Option (the "purchase
Option Tern") shall commence on the date that the District's exercise of the Extension Option is
deemed ineffective and shall expire twelve (12) months prior to the last day of the Existing
Tern.
(c) Exercise of Purchase Option. The District shall exercise the
Purchase Option by delivering to Poseidon written notice (the "Purchase Option Exercise
Notice") prior to the expiration of the Purchase Option Term of the District's election to exercise
the Purchase Option. Unless and until the District shaIl deliver the Purchase Option Exercise
Notice, the District shall have no obligation to purchase the Project from Poseidon.
(d) Purchase Option Price. The purchase price (the "Purchase
Option Price") shall be the fair market value of the Project as determined pursuant to this Section
2.1.5(d). The Parties shall have ninety (90) days after Poseidon receives the Purchase Option
Exercise Notice in which to agree on the Purchase Option Price. If the Parties are unable to
agree on the Purchase Option Price within that period, then within ten (10) days after the
expiration of that period each of the District and Poseidon, at its respective cost and by giving
notice to the other Party, shall appoint a qualified appraiser to set the Purchase Option Price for
the Project. If either Poseidon or the District fails to appoint an appraiser within ten (10) days
after the other Party has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the Purchase Option Price of the Project. If the two
appraisers are appointed by the Parties as set forth in this Section 2.1.5(d), they shall meet
promptly and attempt to set the Purchase Option Price of the Project. If they are unable to agree
on the Purchase Option Price within thirty (30) days after the second appraiser has been
appointed, they shall attempt to select a third qualified appraiser within ten (IO) days aAer the
last day the two appraisers are given to set the Purchase Option Price. If they are unable to agree
on a third appraiser, either of the District or Poseidon, upon ten (IO) days notice to the other
Party, may apply to the presiding judge of the Superior Court of the State of California, County
of San Diego, for the selection of a third, qualified appraiser. The District and Poseidon each
4
DSMDB.1760968.12A 37
shall bear one-half of the cost of appointing the third appraiser and of paying the third appraiser‘s
fee. The third appraiser, however selected, shall be a person who has not previously acted in any
capacity for either of the District or Poseidon.
Within thirty (30) days after the selection of the third appraiser, a majority of the
appraisers shall set the Purchase Option Price of the Project. If a majority of the appraisers are
unable to set the Purchase Option Price within the required time period, the three appraisals shall
be added together and their total divided by three (3); the resulting quotient shall be the Purchase
Option Price of the Project. Notwithstanding the foregoing, the low appraisal shall be
disregarded if it is more than ten percent (10%) lower than the middle appraisal, and the high
appraisal shall be disregarded if it is more than ten percent (10%) higher than the middle
appraisal. If only one appraisal is disregarded, then the remaining two (2) appraisals shall be
added together and their total divided by two (2); the resulting quotient shall be the Purchase
Option Price of the Project. If both the low appraisal and the high appraisal are disregarded, the
middle appraisal shall be the Purchase Option Price for the Project.
After the Purchase Option Price has been set, the appraisers immediately shall
notify the Parties. If the District objects to the Purchase Option Price that has been set, the
District shall have the right to elect not to purchase the Project, so long as the District pays all
the costs in connection with the appraisal procedure that set the Purchase Option Price. The
District’s election not to purchase the Project must be exercised within ten (1 0) days after receipt
of notice from the appraisers of the Purchase Option Price. If the District does not exercise its
election within such ten (10) day period, the District shall purchase the Project from Poseidon as
set forth in this Section 2.1.5(d).
(e) Closing. The closing date of the purchase of the Project pursuant
to the Purchase Option shall be the last day of the Term. The District shall deliver the Purchase
Option Price at the closing and at or prior to the closing the Parties shall execute and deliver
such other documents as are reasonably necessary to consummate the transfer of the Project.
2.2 Water Year, Defined. As used in this Agreement, “Water Year” means a
period of twelve (12) consecutive calendar months, commencing on the first day of January and
ending on the last day of December; provided, however that the fmt Water Year shall commence
on the Commercial Operation Date and shall end on December 3 1, and the last Water Year shall
commence on January 1 prior to the date the Term of the Agreement expires or is terminated,
whichever applies, and shall end on the last day of the Term of this Agreement or the effective
date of any termination, whichever applies.
2.3 Termination Prior to the Commercial Operation Date.
2.3.1 Certain Events. In the event that by a date that is twenty-four (24)
months after the Effeetive Date (as sueh date may be extended by mutual agreement of the
Parties) (the “Determination Date”) any of the following has not occurred, then either Party may
terminate this Agreement provided it is not in breach of its obligations hereunder: (i) the
Environmental Impact Report for the Project has not been certified under CEQA, (ii) Poseidon
has not entered into the Supplemental Agreements in accordance with Section 1.2, (iii) the
5
DSMDB.1760968.12A 3d
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Parties have not completed the development of the System Test pursuant to Section 7.2.1 and the
Consumer Plumbing Test pursuant to Section 7.2.2, (iv) the Parties have not determined the
concentration limits .for Boron pursuant to Section 8.3, (v) the Parties have not determined the
Interconnection Points pursuant to Section 9.2 (and, if applicable, entered into the Appurtenant
Facilities Agreement), (vi) the Parties have not determined the Delivery Regime pursuant to
Section 9.3 or (vii) Poseidon has not obtained any required consent of Cabrillo Power I LLC to
the District’s exercise of its rights under Section 14.2.2.
2.3.2 Authority Water Rates. In the event that by the Determination Date
Poseidon has reasonably determined that the water rates charged by the Authority are not
sufficient to implement the Project, then Poseidon may terminate this Agreement.
2.33 Completion of System Test. In the event that the System Test has not
been successfully completed by a date that is twenty-four (24) months after the initial
commencement of the System Test (as such date may be extended by mutual agreement of the
Parties), then either Party may terminate this Agreement.
23.4 Legal Entitlements For Construction. As more specifically set forth in Section 5, Poseidon shall obtain and maintain all Legal Entitlements with respect to the
Project. On or before the fourth (4th) anniversary of the Effective Date (the “Construction
Permit Deadline”) Poseidon shall obtain (or cause its applicable subcontractors to obtain) all
Legal Entitlements required for the commencement of construction of the Project. In the event
that Poseidon has not obtained such Legal Entitlements by the Construction Pedt Deadline, the
Parties shall meet to assess the effect of the delay on the implementation of the Project. The
Parties shall use commercially reasonable efforts to agree upon an extension of the Construction
Pennit Deadline. If the Parties cannot agree on such an extension, then either Party may
terminate this Agreement.
3. PURCHASE PRICE.
3.1 Purchase Price.
3.1.1 Initial Purchase Price. As the purchase price (“Purchase Price”) for the
Contract Capacity, the District shall pay to Poseidon in accordance with Section 3.3 an amount
equal to (A) an amount per acre foot equal to the lower of (i) the Avoided Water Cost (as defined
in Schedule 3) and (ii) the Base Price (as defined below), multiplied by (B) the total number of
acre feet actually delivered (or deemed to be delivered pursuant to Section 9.8) to the Delivery
Points (defined in Section 9.2). Subject to Sections 3.2, 9.2 and 10, the initial base price (the
“Base Price”) shall be the sum of (i) Eight hundred and sixty-one Dollars ($861) per acre foot
and (ii) the Delivery Charge as determined pursuant to Section 3.2.3.
3.1.2 Subsidies. The Parties shall use commercially reasonable efforts to
obtain either (i) a subsidy fiom the Metropolitan Water District of Southern California (“MWD)
under its Seawater Desalination Program in an amount not less than Two Hundred Fifty Dollars
($250.00) per acre foot for the District’s purchase of Product Water under this Agreement or (ii)
a form of third party financial support for the District’s purchase of Product Water under this
6
DSMDB.1760%8.12A 39
.
Agreement which provides the District with the economic equivalent of not less than Two
Hundred Fifty Dollars ($250.00) per acre foot for the District’s purchase of Product Water under
this Agreement (such subsidy or financial support hereinafter referred to as the “Subsidy”)).
Poseidon shall cooperate with the District in obtaining the Subsidy. The Parties further agree
that the Base Price shall be equitably adjusted to reflect any other subsidies, grants or external
finding, including without limitation hds available under Proposition 50, that shall reduce
Poseidon’s capital and/or operating and maintenance costs of the Project (the “Other Grants or
Subsidies“). The Parties shall cooperate with each other in applying for and in obtaining any
Other Grants or Subsidies.
3.2 Adjustments to the Base Price.
3.2.1 Schedule 3. The Base Price shall be adjusted as described on Schedule 3.
3.2.2 Change in Law. In the event of any change to or the adoption of any
Applicable Law after the Effective Date (a “Change in Law”) (other than a Change in Law
which results in a New City Charge) which would materially and adversely affect the ability of
Poseidon to perform any of its material obligations under this Agreement the Base Price shall be
equitably adjusted to reflect the costs incurred by Poseidon to comply with such change to or
adoption of an Applicable Law.
3.23 Delivery Charge. Within twelve (12) months after the Effectbe Date,
the Parties shall use commercially reasonable efforts to agree upon a mutually-acceptable per
acre foot charge (the “Delivery Charge”), which charge shall reflect the cost of construction,
financing, operation and maintenance of the Appurtenant Facilities. The Delivery Charge (as it
may be reduced pursuant to Section9.2) shall be a part of the Base Price as described in
Section 3.1.1.
3.2.4 Payment in Lieu of Taxes. In the event that, subsequent to a third party
acquiring the Project, including Poseidon’s leasehold of the Site, such third party is not obligated
to pay property taxes with respect to the Project or a fee in lieu of property taxes pursuant to the
Development Agreement, the Base Price will be reduced by an amount equal to the amount of
taxes no longer payable.
3.3 Time and Manner for Payments. For each month during the Term that
deliveries of Product Water are made pursuant to this Agreement (or deemed made pursuant to
Section 9.8), Poseidon shall invoice the District for the then-current Purchase Price for Product
Water delivered to the Delivery Points in the preceding month and for any Additional Amounts
incurred in the preceding month. The invoice for the last month of each Water Year also shall
include the amount of any Deferred Payment andor Additional Payment due from the District
pursuant to Schedule 3. Within thirty (30) days of receipt of an invoice from Poseidon, the
District shall remit to Poseidon the amount invoiced. Invoices and payments shall be delivered
to Poseidon at the address for notices to Poseidon set forth in Section 21.4 of this Agreement.
If Poseidon has not received payment prior to the thirtieth (30th) day after the District’s receipt
of the corresponding invoice,
with respect to such invoice.
Poseidon may send the District a notice (an “Overdue Notice”)
Payments made more than fifteen (1 5) days after the date of the
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DSMDB. 1760968.12A to
I. I.
District’s receipt of an Overdue Notice from Poseidon will bear a late feelinterest charge of
one percent (1 %) per month (but not to exceed the maximum amount permitted by law) (the
“Overdue Rate”), from the thirtieth (30*) day after the date of receipt of the invoice. In the
event of a dispute over the amount invoiced by Poseidon, the District promptly shall notifj.
Poseidon of any such dispute and will pay any nondisputed amounts. If the Parties are unable
to resolve any such disputes, the disputes shall be resolved in accordance with the procedure
set forth in Section 20. If any disputed amount is adjusted in Poseidon’s favor, the District
shall pay to Poseidon the amount of such adjustment, with interest thereon at the Overdue Rate
from the date such disputed amount was due until the date of actual payment.
3.4 Take-if-Delivered Contract. The Parties acknowledge and agree that this
Agreement is a “take-if-delivered’’ contract for the purchase of Product Water from Poseidon
during each year of the Term. Payments made by the District shall be based upon the quantity of
water actually delivered (or deemed to be delivered pursuant to Section 9.8) to the Delivery
Points multiplied by the Purchase Price in effect at the time of delivery, calculated in accordance
with Sections 3.1 through 3.2 hereof, unless the Parties otherwise agree in writing.
3.5 Additional Amounts. In addition to the payment of the Purchase Price, the
District shall reimburse Poseidon for the following items (the “Additional Amounts”):
3.5.1 New City Charges. All franchise fees, taxes or other monetary charges
levied in a discriminatory manner by the City, the District, the RDA or any agency of any of the
foregoing on Poseidon or the Project (collectively, the “New City Charges”) but only to the
extent actually paid by Poseidon. The Parties intend that, if possible, Poseidon shall pass
through any such New City Charge to the District which, in turn, shall pass through any such
New City Charge to its ratepayers, and the District shall collect such New City Charge from its
ratepayers and shall remit such New City Charge on Poseidon’s behalf to the City, the District or
the RDA, whichever applies.
3.5.2
Insurance (as described in Section 12).
Additional Insurance. The cost of the premiums for the Additional
4. CONSTRUCTION.
4.1 Engineering, Procurement and Construction. Poseidon shall engineer,
procure and construct the Project in accordance with: (a) any law, statute, ordinance, rule, code,
standard, regulation, requirement, judgment, consent decree, consent order, consent agreement,
permit action, determination or order applicable to any activities associated with the designing,
building, testing, acceptance, permitting, operation, maintenance, management and ownership of
any part of the Project (collectively “Applicable Laws”) and any other obligations of the Pdes
under this Agreement; and (b) those methods, techniques and standards that, at the time a
particular service is performed smd in light of the circumstances then known or which reasonably
should have been known, are generally accepted for use in the design, construction, operation,
maintenance, management and ownership of facilities similar to the Project (collectively
“Prudent Industry Practices”). Poseidon shall not commence construction of the portion of the
DSMDB.1760968.1ZA
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Project which is to provide Product Water to the District until the condition set forth in
Section 13.2.6 has been satisfied or waived by the District.
4.2 Testing. Prior to the Project having commenced selling Product Water on a
continuous basis as contemplated by the Delivery Regime ("Commercial Operation"), the
Project shall have completed successfblly a performance test (the "Performance Test") of
delivery of Product Water of the quality and quantity provided in this Agreement. The criteria
for the Performance Test shall be developed by Poseidon in accordance with Prudent Industry
Practices and approved by the District within thirty (30) days after Poseidon has delivered the
criteria to the District. The criteria for the Performance Test shall be included in Poseidon's
engineering, procurement and construction contract for the Project. The District also shall have
an opportunity to be present at, and review the results of, the Performance Test. Poseidon may
repeat the Performance Test as often as necessary, provided that it gives the District at least
three(3) days notice prior to each Performance Test. Once the Project has completed the
Performance Test successfully, Poseidon may declare that the Project is ready to enter into
Commercial Operation and begin delivery of Product Water to the Delivery Points in accordance
with Section 9 (the date of Poseidon's declaration is referred to herein as the "Commercial
Operation Date").
5. LEGAL ENTITLEMENTS. Poseidon, at its sole cost and expense, shall be solely
responsible for obtaining and maintaining (or causing its applicable subcontractors to obtain and
maintain) any and all permits, licenses, approvals, authorizations, consents and entitlements of
whatever kind and however described (collectively, "Legal Entitlements") which are required to
be obtained or maintained with respect to the Project or the activities to be performed by
Poseidon (or its applicable subcontractors) under this Agreement and which are required to be
issued by any federal, state, city or regional legislative, executive, judicial or other governmental
board, agency, authority, commission, administration, court or other body or any official thereof
having jurisdiction with respect to any matter which is subject to this Agreement, including
without limitation the California Coastal Commission, the Regional Water Quality Control
Board, the City, the Carlsbad Housing and Redevelopment Commission ("RDA") and the
District (each, a "Governmental Authority"). Poseidon also shall be solely responsible for
compliance with and for all costs and expenses necessary for compliance with CEQA, to enable
Poseidon to make Product Water available to the District pursuant to this Agreement, and
Poseidon shall be responsible for initiating any procedures required for compliance with CEQA
with regard to this Agreement. The City shall be the "lead agency" (as that term is used in
CEQA) with respect to the Project and shall include this Agreement as part of the proposed
Project which will be subject to environmental review under CEQA.
6. PROJECT OPERATION AND MAINTENANCE.
6.1 Continuous Operation. Poseidon shall operate the Project at the level
necessary to satisfy Poseidon's obligation to provide the Contract Capacity to the Districtunder
this Agreement in accordance with the Delivery Regime.
6.2 Operations, Maintenance, Management and Repair. Poseidon, at its sole
cost and expense, shall operate, maintain and manage or cause its subcontractors (including plant
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DSMDB.1760968.12A
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managers and operators) to operate, maintain and manage the Project in accordance with this
Agreement, all Applicable Laws and Prudent Industry Practice. Without limiting the generality
of the foregoing, Poseidon shall maintain the Project, including without limitation each material
portion thereof, in good mechanical and operating repair and condition, perform maintenance in
accordance with all Applicable Laws (whether now in force or hereafter adopted), Prudent
Industry Practice and manufacturers’ recommendations, ordinary wear and tear excepted.
Poseidon shall repair or cause to be repaired the Project, including without limitation each
material portion thereof, for damage caused by: (a) acts or omissions over which the District has
no control; (b) acts or omissions of Poseidon or its officers, directors, shareholders, principals,
agents, servants, employees, or third parties; or (c) Poseidon’s failure to perform its obligations
under this Agreement or its obligations under any other agreement in any way related to the
ownership, use or operation of the Project.
63 Operation and Maintenance Manual. Poseidon shall prepare and amend
periodically, in accordance with Prudent Industry Practices, an operation and maintenance
manual (the “O&M Manual”) which sets forth the installation, operation, maintenance, record
keeping and reporting requirements for each material component of the Project and applicable
licensing and qualification requirements for Project personnel. Prior to the Commercial
Operation Date, Poseidon shall deliver to the District five(5) complete copies of the O&M
Manual and associated equipment catalogs and manuals. Within five (5) days of adopting any
amendments to the O&M Manual, Poseidon also shall deliver to the District five (5) copies of
the O&M Manual, as amended.
7. DAMAGE TO THE PROJECT, DISTRIBUTION SYSTEM TECHNICAL STUDIES.
7.1 Damage To the Project. If during the Term the Project or any material portion
thereof is totally or partially destroyed or damaged from any cause whatsoever, Poseidon, at its
sole cost and expense, shall make or cause to be made such repairs or replacements as are
necessary to restore operation of the Project as soon as possible to the extent necessary to
provide the Contract Capacity under this Agreement.
7.2 Distribution System Technical Studies.
7.2.1 System Test. Within one hundred and eighty (180) days after the
Effective Date, the Parties shall complete the development of a mutually acceptable test (the
“System Test”) of the effect of Product Water on the components of the District’s water
distribution system (the “Distribution System”). The System Test shall include circulating
Product Water, meeting the Water Quality Standards, fiom Poseidon’s pilot desalination facility
and the water from the District’s current imported water supply, in parallel, through two identical
systems of pipes, valves and other components provided by the District which are representative
of those contained in the Distribution System (the “System Test Components”) for a time period
sufficient (as mutually agreed by the Parties, but not to exceed six (6) months except as provided
herein) to determine the relative effect of the Product Water on the System Test Components.
Prior to the end of the one hundred and eighty (180) day period to complete the development of
the System Test, the Corrosion Advisory Panel (as defrned in Section 7.234) shall meet with
both Parties in Carlsbad, become familiar with the project and review and comment, in writing,
10
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c
on the proposed design and proposed length of the System Test. Following the conduct of the
System Test, the results of the System Test shall be transmitted to the Corrosion Advisory Panel
and the Corrosion Advisory Panel shall provide written comments on the interpretation of the
results to both Parties. In the event that the System Test results show that the Product Water has
an adverse effect on the integrity of any System Test Component which effect would not also be
caused by water from the District’s current imported water supply, Poseidon shall take all
commercially reasonable actions to change the proposed operation of the Project to remove such
adverse effect. The System Test shall be re-performed until the results thereof do not show that
the Product Water has such an adverse effect on the integrity of any System Test Component. In
the event that the members of the Corrosion Advisory Panel do not agree as to whether the
results of the System Test show such an adverse affect on any System Test Component or
whether the duration of the System Test is adequate to evaluate such an adverse effect, then the
System Test shall be extended by a time period to be mutually agreed by the Parties but not to
exceed an additional six (6) months. All costs of perfonning (and, if necessary, re-performing)
the System Test shall be borne by Poseidon; provided, however that the cost of providing System
Test Components, imported water and the collection, treatment, and disposal of such imported
water in accordance with Applicable Law shall be borne by the District.
7.2.2 Consumer Plumbing Test. Within one hundred and eighty (180) days
after the Effective Date, the Parties shall complete the development of a mutually-acceptable test
(the “Consumer Plumbing Test”) of the effect of Product Water on the components of consumer
plumbing used in the District’s service area, particularly on the leaching of lead and/or copper
from these components. The Consumer Plumbing Test shall include circulating Product Water
meeting the Water Quality Standards from Poseidon’s pilot desalination facility and the water
from the District’s current imported water supply, in parallel, through two identical systems of
consumer plumbing components (the “Consumer Test Components”) for a time period sufficient
(as mutually agreed by the Parties, but not to exceed six (6) months, except as provided herein)
to determine the relative effect of the Product Water on the Test Components. The pipe loop test
described in AWWARF, 199 1, Lead Control Strategies W06, American Water Works Research
Foundation, Denver, CO shall be used as a preliminary model of the Consumer Plumbing Test.
Prior to the end of the one hundred and eighty (180) day period to complete the development of
the Consumer Plumbing Test, the Corrosion Advisory Panel (as defined in Section 7.2.4) shall
meet with both Parties in Carlsbad, become familiar with the project to review and comment in
writing on the proposed design and proposed length of the Consumer Plumbing Test. Following
the conduct of the Consumer Plumbing Test, the results of the Consumer Plumbing Test shall be
transmitted to the Corrosion Advisory Panel and the Corrosion Advisory Panel shall provide
written comments on the interpretation of the results to both Parties. In the event that the
Consumer Plumbing Test results show that the Product Water has an adverse effect on the
integrity of any Consumer Test Component or on the leaching of lead andor copper fiom said
Consumer Test Component which effect would not also be caused by water from the District’s
current imported water supfly- Poseidon shalltake all mmmerchlly reasonahk a&cm tn
implement changes to the proposed operation of the Project to remove any such adverse impacts.
The Consumer Plumbing Test shall be re-performed until the results thereof do not show that
the Product Water has such an adverse effect on the integrity of any Consumer Test Component
or the leaching of lead and/or copper from any Consumer Test Component. In the event that the
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DSMDB. 1760968.12A
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members of the Corrosion Advisory Panel do not agree as to whether the results of the Consumer
Plumbing Test show an adverse effect on the integrity of any Consumer Test Component or on
the leaching of lead andor copper fiom any Consumer Test Component or whether the duration
of the Consumer Plumbing Test is adequate to evaluate such an adverse effect, then the
Consumer Plumbing Test shall be extended by a time period to be mutually agreed by the
Parties, but not to exceed six (6) months. All costs of performing (and, if necessary, re-
performing) the Consumer Plumbing Test shall be borne by Poseidon; provided, however that
the cost of providing Consumer Test Components, imported water and the collection, treatment,
and disposal of such imported water in accordance with Applicable Law shall be borne by the
District.
7.23 System Monitoring Plan. Within twelve (12) months after the
Effective Date of the Agreement, the Parties shall commence the development of a mutually
agreeable method for monitoring the effect of Product Water on the integrity of the Distribution
System (the “System Monitoring Plan”). Before the System Monitoring Plan is final, the
Corrosion Advisory Panel (as defined in Section 7.2.4) shall have thirty (30) days to review the
final draft System Monitoring Plan and provide written comments. The Parties shall complete
the development of the System Monitoring Plan in sufficient time to allow at least one year of
data collection prior to the commencement of Commercial Operation, but in no event later than
twelve (12) months prior to the Projected Commencement Date. In the event that the District
reasonably believes that the Product Water may have an adverse effect on the integrity of all or a
material portion of the Distribution System which effect would not also be caused by the
District’s likely alternative water supply, the Parties shall meet to discuss such potential adverse
effects. Poseidon shall take all commercially reasonable actions to implement changes to the
operation of the Project to remove such an adverse effect of Product Water on the integrity of all
or a material portion of the Distribution System. The cost of the System Monitoring Plan in
excess of the cost which would be reasonably incurred by the District to monitor the Distribution
System in the absence of the Project shall be equally shared by the Parties up to the first
anniversary of the Commercial Operation. Thereafter, any additional system monitoring cost
shall be borne by the District.
7.2.4 Corrosion Advisory Panel. Within ninety (90) days after the
Effective Date, the Parties shall retain a review panel (the “Corrosion Advisory Panel”),
composed of two ~tio~lly recognized experts with experience in the design and conduct of
tests on the corrosiveness of water to system and consumer plumbing components. Each Party
shall have the right to appoint one member of the Corrosion Advisory Panel. The Corrosion
Advisory Panel shall be retained to review the design and length of the System Test and the
Consumer Plumbing Test, the interpretation of the results of said tests and the design of the
System Monitoring Plan, as more specifically provided in Section 7.2.1 and 7.2.2. The
Corrosion Advisory Panel shall meet one time in Carlsbad to become familiar with the project, to
review and comment, in writin& on the design and the proposed lensh of the said tests before
the design-and length of said tests are finalized. Following the conduct of the said tests, the
results of said tests shall be transmitted to the Corrosion Advisory Panel and the Corrosion
Advisory Panel shall provide written review comments to the Parties. If the members of the
Corrosion Advisory Panel do not agree with each other on any advice or recommendation on any
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matter, each member shall report his or her advice or recommendation on said matter
independently. Having reviewed and considered the advice and recommendations of the
Corrosion Advisory Panel, the Parties shall make their own independent judgments about the
design and length of the System Test and the Consumer Plumbing Test, and the design of the
System Monitoring Plan and about the interpretation of the results from the System Test and the
Consumer Plumbing Test.
8. WATER QUALITY.
8.1 Water Quality Issues. With respect to Product Water produced by the
Project, Poseidon and the District agree to work cooperatively to conduct, prior to
determinations of the Delivery Regime and Interconnection Points, mutually acceptable
technical studies pertaining to quality, blending, distribution and consumer acceptance
(including without limitation customer issues, such as color, cloudiness, taste and odor) of
Product Water, the impact of Product Water Quality on customer uses of water, the impact of
Product Water on the integrity of existing pipelines, and the impact of additional discharge of
municipal and industrial waste from Project facilities (collectively “Water Quality Issues”)).
These studies shall include advice from a nationally recognized expert on the impact of boron
in irrigation water on ornamental plants (the “Boron Expert”). The Boron Expert shall be
mutually acceptable to both Parties. Except as provided in Sections 7.2.1, 7.2.2 and 7.2.3,
Poseidon, at its cost and expense, shall be responsible for such technical studies related to the
Water Quality Issues. The Delivery Regime and any revisions to the Quality Standards for
Product Water shall take into account the results of the technical studies described above.
Without limiting the generality of the foregoing, Poseidon and the District agree to meet prior
to the Commercial Operation Date, and, upon request of the District, during the Term on a
periodic basis with the District’s major water customers, such as breweries, nurseries,
landscape irrigators, agricultural growers, biotechnology companies and cleaners, to discuss
and work to resolve issues those customers may have with receiving Product Water. Poseidon
shall cooperate with the District in resolving Water Quality Issues. Notwithstanding the
foregoing, any change in the Delivery Regime or Quality Standards developed pursuant to this
Agreement shall be mutually agreed by the Parties.
8.2 Quality Standards. Compliance with Law, Pressure Parameters and
Water Quality Standards. All Product Water produced by the Project and delivered to the
Delivery Points must meet all of the following standards (collectively the “Quality Standards”):
(a) all drinking water quality standards under Applicable Law (whether now in force or hereafter
adopted) and action levels now in force or hereafter adopted by the California Department of
Health Services, (b) the water quality specifications set forth in Schedule 8.2. and (c) any
mutually-agreed change to the Quality Standards with respect to the Water Quality issues
described in Section 8.1 above or otherwise identified in the technical studies performed with
respect to such Water Quality Issues. Attached as Schedule 8.2 are the Quality Standards with
respect to the Ffiject as of the Effective DaK The Quality Standards in Schedule 8.2 include
permitted variations for each water quality parameter specified. If the Product Water produced
by the Project at any time fails to meet all Quality Standards, then Poseidon immediately shall
notiq the District, and the District and Poseidon shall meet promptly thereafter to determine
what corrective measures, if any, need to be taken. The Parties acknowledge that corrective
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measures may include, without limitation, segregating Product Water that fails to meet all
Quality Standards. Poseidon shall be responsible for any and all state and federal fines resulting
from Product Water that does not meet Applicable Law for drinking water quality.
8.3 Finalization of Water Quality Specification for Boron. The Parties shall use
commercially reasonable efforts to determine, within one hundred and eighty (1 80) days after
the Effective Date, mutually-acceptable concentration limits for Boron to be included in
Schedule 8.2.
8.4 District’s Non-Acceptance. The District shall not be obligated to accept or pay
for Product Water of quality that does not meet the Quality Standards.
8.5 Compliance with Regulations on Water Quality. As a purveyor of drinking
water, the District is required to comply with regulations that address water quality in the
Distribution System and at the consumer’s tap (“Consumer Quality Standards”). If, following
the introduction of Product Water, the District is in violation of the Consumer Quality
Standards, then the District immediately shall notify the Poseidon, and the District and
Poseidon shall meet promptly thereafter to determine what corrective measures, if any, need to
be taken. If a Product Water Causation Event (as defined below) occurs, then the District,
upon written notice to Poseidon, may suspend deliveries of Product Water, and the District
shall not be obligated to pay for Product Water that causes the District to be in violation of the
Consumer Quality Standards; provided, however that prior to such suspension the District and
Poseidon shall use all commercially reasonable efforts to implement alternative corrective
measures to address a violation of the Consumer Quality Standards. A “Product Water
Causation Event” shall mean the occurrence of the following three (3) conditions: (i) Product
Water causes the District be in violation of the Consumer Quality Standards, (ii) such violation
would not be caused by the District’s likely alternative water supply and (iii) such violation is
not also caused in whole or in part by any action or omission of the District. Poseidon shall be
responsible for any and all state and federal fines resulting from a Product Water Causation
Event. With respect to the issue of causation of a District violation of the Consumer Quality
Standards, nothing set forth in this Section 8.5 shall be deemed or construed to shift the burden
of proof to Poseidon, or as a waiver by Poseidon of any claims or defenses.
9. DELIVERY OF WATER
9.1 Delivery of Water. Subject to Sections 3.2.2 and 9.2, Poseidon shall pay for all
costs and expenses whatsoever of the delivery of Product Water to the Delivery Points in
accordance with this Agreement, including without limitation all costs and expenses of
compliance with all Applicable Laws related to the delivery of Product Water by Poseidon under
the provisions of this Agreement. The District shall be responsible for all costs and expenses
incurred after delivery of Product Water at the Delivery Points by Poseidon in compliance with
this Agreement. Subject to Section 8.q tiieDistricT shall accept alf Product Water meeting the
Quality Standards made available at the Delivery Points in accordance with the Delivery
Regime.
DSMDB. 1760968.12A
14 43
9.2 Delivery Points. The Parties shall use commercially reasonable efforts to
determine, within twelve (12) months after the Effective Date, mutually-acceptable
interconnection points (“Interconnection Points”) for the interconnection of the Appurtenant
Facilities with the Distribution System. Poseidon, at its cost and expense, shall construct all
conveyance facilities, pipelines, pumps, pump stations and any other infrastructure (the
“Appurtenant Facilities”) necessary or required to deliver the Product Water to the
Interconnection Points. At any time after the Interconnection Points have been determined, the
District may noti@ Poseidon that the District elects to: (i) own the Appurtenant Facilities (except
for the pumping station located at the Encina Power Station) upon their completion or (ii) have a
joint powers authority own the Appurtenant Facilities, provided such joint powers authority has
equivalent capabilities to those of the District to operate and maintain the Appwtenant Facilities.
If the District makes such an election, the Parties shall negotiate in good faith on the terms of an
agreement (the “Appurtenant Facilities Agreement”) to: (i) transfer the Appurtenant Facilities to
the District (or a joint powers authority as described above) for a nominal amount; and
(ii) provide for the operation and maintenance of the Appurtenant Facilities by the District (or a
joint powers authority as described above) (including their operation to transport Product Water
in excess of the Contract Capacity for third-parties on terms sufficient to support Poseidon’s
obligations to such third-parties). If the District makes such an election, the “Delivery Point” for
the purpose of this Agreement shall be the connection of the Project and the Appurtenant
Facilities; otherwise the Delivery Point(s) shall be the Interconnection Point(s). If the District
(or a joint powers authority as described above) operates the Appurtenant Facilities the Base
Price shall be reduced by the non-capital portion of the Delivery Charge which represents
Poseidon’s projected cost of operating and maintaining the Appurtenant Facilities. If the District
has elected to own, or have a joint powers authority own, the Appurtenant Facilities, the District
may, at any time up to one hundred and eighty (180) days before the Projected Commencement
Date, elect to finance the cost of the Appurtenant Facilities; provided that the District’s proposed
financing structure shall not adversely affect Poseidon’s ability to finance the Project or perform
its other obligations under this Agreement. If the District makes such an election, the Base Price
shall be reduced by the capital portion of the Delivery Charge which represents Poseidon’s
projected cost of financing construction and operation of the Appurtenant Facilities.
9.3 Delivery Schedule. Poseidon and the District shall use commercially
reasonable efforts to develop, within twelve (12) months after the Effective Date, a mutually
acceptable delivery regime (the “Delivery Regime”) for the delivery of Product Water from the
Project to the District. The Delivery Regime shall include a schedule of delivery so that the
average daily amount delivered to the District after the Commercial Operation Date is sufficient
to meet the District’s minimum daily requirements for Product Water (up to the Contract
Capacity). The Delivery Regime also shall be developed in coordination with the delivery
regimes for other purchasers of Product Water from the Project and for Product Water delivery
prior to the Commercial Operation Date to the extent Product Water meets the Quality Standards
and can be sold to the District prior to the Commercial Operatian Date under Applicable Law.
9.4 Conveyance Losses. Poseidon shall be responsible for any water losses
incurred in the delivery of Product Water to the District up to the Delivery Point.
DSMDB.1760968.12A
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9.5 Meters and Records. The Delivery Regime shall include mutually acceptable
procedures addressing the locations, testing and use of appropriate measurement devices to
measure the quantity and quality of Product Water delivered to the District. At a minimum, all
water release structures at the Delivery Points shall be equipped with totalizing flow meters and
Poseidon shall prepare and keep monthly readings therefrom. Throughout the Term, Poseidon
shall maintain records in accordance with the requirements of Applicable Laws and generally
accepted accounting principles, as appropriate, pertaining to the quantity and quality of water
delivered pursuant to this Agreement, The District shall be entitled to read the meters at least
once per month during regular business days and hours and to request and receive from Poseidon
copies of all such water delivery, quantity and quality records.
9.6 Reports. On or before the tenth (10th) day of each month during the Term
commencing after the Commercial Operation Date, Poseidon shall send written reports to the
District setting forth the amount of Product Water and the quality of Product Water delivered to
the Delivery Points during the immediately preceding month pursuant to this Agreement.
9.7 Liquidated Damages for Failure to Deliver. If Poseidon shall fail to deliver
at least ninety-six percent (96%) (the “Threshold”) of the Product Water meeting the Quality
Standards required by the Delivery Regime for any Initial Period or Extended Period (as each are
defined below) for any reason other than a Force Majeure event (as defined in Section 17 hereof)
or a breach of this Agreement by the District, then Poseidon shall pay the District as liquidated
damages and not as a penalty: (i) for an Initial Period, an amount equal to the positive difference,
if any, between the (A) per acre foot cost incurred by the District to obtain water and (B)
Purchase Price, for each acre foot of Product Water below the Threshold for the Initial Period
that Poseidon failed to deliver; and (ii) for an Extended Period, an additional amount equal to
fifty dollars ($50) per acre foot, for each acre foot of Product Water below the Threshold for the
Extended Period that Poseidon failed to deliver. ‘‘Initial Period” shall mean, as of any day
commencing on or after the thirtieth (30th) day after the Commercial Operation Date, the thirty
(30) days immediately preceding such day. “Extended Period” shall mean, as of any day
commencing on or after the one hundred and eightieth (180th) day after the Commercial
Operation Date, the one hundred and eighty (180) days immediately preceding such day.
Poseidon shall make payment of any liquidated damages by the thirtieth (30th) day of the month
immediately following the month containing the last day of the Initial Period(s) or Extended
Period(s) for which such liquidated damages arose. If Poseidon pays liquidated damages
pursuant to this Section 9.7 for any InitiaI Period for Product Water Poseidon failed to deliver,
Poseidon shall, solely for the purpose of determining whether Poseidon has met the Threshold in
subsequent Initial Periods, be deemed to have delivered such Product Water. If Poseidon pays
liquidated damages pursuant to this Section9.7 for any Extended Period for Product Water
Poseidon failed to deliver, Poseidon shall, solely for the purpose of determining whether
Poseidon has met the Threshold in subsequent Extended Periods, be deemed to have delivered
such Product Water. Poseidon expressly acknowledges that this provision is reasonable under
the circumstances existing as of the date of this Agreement. The Parties acknowledge that (i) the
determination of the actual damages which are liquidated pursuant to this Section 9.7 is
impracticable or extremely difficult, (ii) otherwise obtaining an adequate remedy is inconvenient
and (iii) the liquidated damages provided for under this Section 9.7 constitute a reasonable
16
DSMDB. 1760968.12A Y
approximation of the ham or loss. The Parties agree that unless the failure to deliver Product
Water constitutes a Poseidon Event of Default pursuant to Section 14.1.1 (in which case, this
Section 9.7 shall no longer apply in the event the District pursues its remedies for a Poseidon
Event of Default), the payment of such liquidated damages shall be the District’s sole remedy for
Poseidon’s failure to deliver Product Water to the District. Poseidon’s obligations under this
Section 9.7 shall not be reduced or otherwise affected by any balance in the Tracking Account.
9.8 District Failure to Accept Product Water. To the extent Poseidon is unable to
deliver Product Water as required by the Delivery Regime as a result of a breach of this
Agreement by the District, the District shall make payment for such undelivered Product Water
(“Undelivered Water”) as if such Undelivered Water had been delivered to the District. Upon
the request of the District, Poseidon shall use commercially reasonable efforts to sell such
Undelivered Water to third parties. Amounts received by Poseidon from the sale of such
Undelivered Water shall be paid to the District until the District has been reimbursed for the
amount paid by the District for such Undelivered Water pursuant to this Agreement. The Parties
agree that, unless the failure to accept Product Water constitutes a District Event of Default
pursuant to Section 14.3.2 (in which case, this Section9.8 shall no longer apply in the event
Poseidon pursues its remedies for a District Event of Default), the District’s payment for
Undelivered Water shall be Poseidon’s sole remedy for the District’s failure to accept Product
Water as a result of a breach by the District.
10. PRIORITY FOR PROJECT WATER, PRICE REDUCTION.
10.1 Priority Poseidon shall not prefer any person, public corporation, agency, or
other consumers over the District with respect to delivery of water from the Project as a
customer of Poseidon; provided, however that in the event that the Project does not produce
enough Product Water for Poseidon to meet its obligations to the District under this Agreement
and to other purchasers of Product Water (a “Shortfall”), then for the first five (5) days of any
such Shortfall Poseidon may allocate Product Water so that the effects of the Shortfall are first
borne by the District for such five (5) day period. If the Shortfall lasts more than five (5) days,
then Poseidon shall allocate Product Water so that the effects of the Shortfall are first borne by
such other purchasers for the second five (5) day period of such Shortfall. If a Shortfall lasts
more than ten (1 0) days, Poseidon shall allocate Product Water for the remainder of the Shortfall
proportionately among all purchasers (including the District) based upon amounts of Product
Water each purchaser is obligated to purchase from Poseidon. Nothing in this Section 10.1 shall
limit Poseidon’s obligations under Section 9.7 or the District’s remedies upon the occurrence of
a Poseidon Event of Default. Poseidon’s obligations under this Agreement shall not be affected
by any agreements entered into by Poseidon and other purchasers of Product Water.
10.2 Price Reduction If Poseidon sells, conveys or transfers Product Water for a
price per acre foot that is less than the Base Price but otherwise on substantially the same terms
and conditions as contained in this Agreement, the Base Price immediately shall be lowered to
such lesser price per acre foot for all purchases of Product Water during the period Poseidon
makes such third-party sales. If Poseidon fails to lower the Base Price as aforesaid, then for all
such sales of Product Water for which the Base Price was not lowered, the District shall receive
a credit toward the Purchase Price that is equal to the amount by which the Base Price charged
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DSMDB.1760968.12A
.
under this Agreement exceeded such lesser price per acre foot for the amount of Product Water
sold by Poseidon at such lesser price per acre foot.
11. USE OF MAERKLE RESERVOIR
11.1 Maerkle Lease. Provided an uncured Poseidon Event of Default has not
occurred, then upon Poseidon's request, the District may lease to Poseidon, for an initial term of
not less than thirty (30) years after the Commercial Operation Date, capacity rights in Maerkle
Reservoir sufficient to store Product Water in amounts determined necessary by Poseidon, and
agreed to by the District, for delivery of Product Water produced by the Project to wholesale
customers other than the District. The lease (the "Maerkle Lease") will be consistent with the
principles for joint use of Maerkle Reservoir more particularly set forth in Section 1 1.4 below.
11.2 Appurtenant Facilities. If the Parties enter into the Maerkle Lease, then
Poseidon, at its cost and expense, shall construct all: (a) Appurtenant Facilities necessary or
required to move Product Water into Maerkle Reservoir; and @)all facilities necessary or
required to move Product Water out of Maerkle Reservoir for the purpose of delivering such
Product Water to wholesale customers othex than the District. Subject to any adjustment to the
Delivery Charge pursuant to Section 9.2, Poseidon also shall be responsible for all capital,
operating and maintenance costs associated with connecting Maerkle Reservoir to such
Appurtenant Facilities as are necessary to transport Product Water into Maerkle Reservoir and to
such facilities as are necessary to transport Product Water out of Maerkle Reservoir for the
purpose of delivering such Product Water to wholesale customers other than the District.
113 District's Obligation. The District will operate and be responsible for all
operating and maintenance costs associated with facilities for transporting installments of
Contract Capacity purchased by the District fiom the Delivery Points into the Distribution
System.
11.4 Principles for Joint Use. Poseidon and the District shall cooperate to develop
mutually-acceptable principles for joint use of Maerkle Reservoir consistent with the intent of
this Agreement. The principles for joint use shall be included in the Maerkle Lease and will
address, without limitation, the following issues: (a) quantification of Poseidon's leased capacity
right; (b) the number and length of extension terms (which shall be at least coextensive with the
Term of this Agreement); (c) rent andor other consideration Poseidon will pay or provide the
District in consideration for the lease of capacity rights, use of District property and operation of
Maerkle Reservoir (provided however, that Poseidon shall not have to pay rent andor other
consideration to the extent its leased capacity right is used to deliver Product Water to the
District); (d) a reservoir operating plan and water delivery regime that takes into consideration
the District's operational and 1Oday storage requirements; and (e) water quality and regulatory
compliance.
12. INSURANCE. From commencement of construction of the Project, Poseidon shall obtain
and maintain, or cause to be obtained and maintained, the types and amounts of insurance
coverages for the Project set forth on Schedule 12. The District may require Poseidon to obtain
and maintain insurance coverages in addition to those described on Schedule 12 (the "Additional
~~~ ~~ ~ ~~
18
DSMDB.1760968.12A
.
Insurance”), subject to (i) such Additional Insurance being comercially available and (ii) the
District reimbursing Poseidon for the cost of the premiums for such Additional Insurance.
Poseidon shall deliver proof reasonably acceptable to the District of properly executed insurance
coverages evidencing compliance with the insurance requirements herein at least ten (IO) days
prior to Poseidon’s anticipated date for commencement of construction of the Project (the
. “Projected Commencement Date”).
12.1 Form. Each policy required under Section 12 shall: (a)be provided at
Poseidon’s expense; (b) be issued by an insurance company which maintains a Best’s rating of at
least A- during the term of the applicable policy or is otherwise reasonably acceptable to the
District and (c) require the insurer to provide the District thirty (30) days prior written notice (ten
(10) days for non-payment of premium), by certified mail, return receipt requested, of
cancellation or intent not to renew any policy of insurance required in this Agreement.
Certificates and endorsements evidencing such insurance coverage shall be delivered to the
District by Poseidon prior to the Projected Commencement Date. To the extent that an insurance
company providing a policy required under this Section 12 fails to maintain a Best’s rating of at
least A- and is not otherwise reasonably acceptable to the District, Poseidon shall promptly
replace such insurance company with a company meeting the requirements of this Section 12.1.
Current Insurance Service Office (KO) or other reasonable and customary policies, forms and
endorsements or broader shall be used where applicable.
12.2 District’s Right to Procure. If Poseidon fails to keep the insurance coverages
required in this Agreement in hll force and effect with insurance companies which maintain a
Best’s rating of at least A- or which are otherwise reasonably acceptable to the District, the
District, subject to the rights of Poseidon’s lenders, may (but shall have no obligation to) at any
time or from time to time, after giving notice thereof to Poseidon, procure such insurance and
pay the premiums therefor, in which event Poseidon shall repay the District all sums paid by the
District, and any costs or expenses incurred by the District in connection therewith, together with
interest thereon at the Overdue Rate from the date due until paid in full, within ten (10) days
following the District’s written demand to Poseidon for such payment. The cost of such
insurance premium and the cost of any claims or losses for which Poseidon would be liable to
the District under this Agreement which fall within the applicable deductibles or self-insured
retention amounts may be deducted, at the option of the District, hm payments otherwise due
Poseidon. The District shall be under no obligation to purchase such insurance or be responsible
for the coverages purchased or the financial stability or responsibility of the insurance company
used. The decision to purchase such insurance coverages shall in no way be construed as a
waiver of the District’s rights under this Agreement.
12.3 Deductibles, Excess Claims. The District shall not be responsible for the
amount of any deductibles, self-insured retention, or claims which are not covered and claims
which exceed available insurance coverage.
~ ~ ~ ~ -
12.4 Additional Insureds. The District, the City and the RDA each shall be named
as additional insureds on all policies of liability insurance required by this Agreement, other than
workers’ compensation, but including employer‘s liability.
19
DSMDB.1760968.12A
12.5 Waiver of Subrogation. Poseidon shall require its insurance canier(s)
furnishing the insurance required herein to waive all rights of subrogation against the District,
including without limitation each of its directors, officers, agents, representatives and employees,
for any and all amounts of claims paid from insurance proceeds. The District shall waive all
rights of subrogation against Poseidon, including its directors, officers, agents, representatives
and employees, for any and all amounts of claims paid from insurance proceeds.
12.6 Statement of Insurance. If at any time the District requests a written statement
from any of Poseidon's insurers as to any impairments to any aggregate policy limit, Poseidon
promptly shall authorize and have delivered such statement to the District.
12.7 Primary Insurance for Additional Insureds, Poseidon's insurance policies
shall provide that the insurance afforded by those policies to the additional insureds is primary to
all insurance or self-insurance carried by the District. Poseidon acknowledges that all insurance
or self-insurance carried by the District is strictly excess and shall not contribute with Poseidon's
liability insurance.
13. CONDITIONS, ADDITIONAL ASSISTANCE
13.1 Poseidon's Conditions. Poseidon's obligations to sell Product Water to the
District pursuant to this Agreement shall be subject to satisfaction or waiver by Poseidon, in its
reasonable discretion, of the following conditions prior to the Commercial Operation Date:
13.1.1 CEQA Compliance. All requirements for complying with CEQA shall
have been satisfied, and no legal challenge to compliance with CEQA shall have been filed
within thirty-five (35) days of such compliance, or, if filed, a court of competent jurisdiction
shall have entered a final judgment sustaining or validating such CEQA compliance.
13.1.2 Compliance with Applicable Laws. Poseidon shall have completed
construction of the Project in accordance with all Applicable Laws and Prudent Industry
Practices.
13.1.3 Governmental Approvals. Poseidon shall have obtained and maintained
(or caused its appropriate subcontractors to obtain and maintain) all Governmental Approvals for
the construction of the Project, including the Appurtenant Facilities, and for the sale and delivery
of Product Water.
13.1.4 Maerkle Lease. If Poseidon has requested its execution, the Maerkle
Lease shall have been entered into in 'kcordance with Section 1 1 hereof.
13.1.5 Additional Water Purchase Agreements. Poseidon shall have entered
into agreements with other purca for the remaining outputof the Project. ~~
13.1.6 Supplemental Agreements. Poseidon shall have entered into
Supplemental Agreements in accordance with Section 1.2.
20
DSMDB. 1760968.12A
13.1.7 Product Water Delivery and Quality. The Parties shall have agreed
upon the Delivery Points, the Delivery Charge, the Monitoring System and the Delivery Regime.
The System Test shall have been successfully completed.
13.2 District’s Conditions. The District’s obligations to purchase Product Water
(other than the Purchase of Product Water prior to the Commercial Operation Date pursuant to
the Delivery Regime and to the extent permitted under Section 9.3) from Poseidon pursuant to
this Agreement shall be subject to satisfaction or waiver by the District, in its reasonable
discretion, of the following conditions prior to the Commercial Operation Date:
13.2.1 CEQA Compliance. All requirements for complying with CEQA shall
have been satisfied, and no legal challenge to compliance with CEQA shall have been filed
within thirty-five (35) days of such compliance, or, if filed, a court of competent jurisdiction
shall have entered a final judgment sustaining or validating such CEQA compliance.
13.2.2 Compliance with Applicable Laws. Poseidon shall have completed
construction of the Project in accordance with all Applicable Laws and Prudent Industry
Practices in all material respects.
13.2.3 Performance Test. Poseidon shall have completed the Performance Test
successfblly .
13.2.4 Governmental Approvals. Poseidon shall have obtained and maintained
(or caused its appropriate subcontractors to obtain and maintain) all Governmental Approvals for
the construction of the Project, including the Appurtenant Facilities, and for the sale and delivery
of Product Water.
13.2.5 Maerkle Lease. If Poseidon has requested its execution, the Maerkle
Lease shall have been entered into in accordance with Section 11 hereof.
13.2.6 Subsidy. The District shall have entered into agreements with all
appropriate parties on mutually acceptable terms and conditions pursuant to which the District
shall receive, either in cash or in credit, the Subsidy.
13.2.7 Supplemental Agreements. Poseidon shall have entered into
Supplemental Agreements in accordance with Section 1.2.
13.2.8 Product Water Delivery and Quality. The Parties shall have agreed
upon the Delivery Points, the Delivery Charge, the Monitoring System and the Delivery Regime.
The System Test shall have been successfblly completed.
13.2.9 Devehpment Agreement; Poseidon and thecity sbH havcenteredintu
a development agreement (the “Development Agreement”), containing the terms and conditions
set forth in Exhibit 13.2.9 and such other terms and conditions which are mutually acceptable to
Poseidon and the City, and the District shall have detennined, in its reasonable judgment, that
DSMDB.1760968.12A
21
‘.
e
the lease between Poseidon and Cabrillo Power I LLC is valid and that the Development
Agreement can run with the leasehold interest created thereby.
13.2.10 Back-up Water Supply. The District shall have received an
acknowledgment from the Authority that the District is eligible to receive a back-up supply of
water from the Authority on terms generally available to the Authority’s member agencies.
133 Additional Assistance. Upon request by Poseidon the District shall cooperate
with Poseidon in obtaining (i)additional purchasers of Product Water from the Project and
(ii) wastewater treatment services as needed for the Project, so long as such cooperation does not
impose any cost, expense or other adverse effect on the District outside of the normal come of
business. Poseidon acknowledges that the cooperation of the District with respect to wastewater
treatment services does not constitute a commitment to provide such services and that such
services are subject to the availability of sufficient treatment or conveyance capacity.
14. DEFAULTS AND REMEDIES.
14.1 Default by Poseidon. The occurrence of any of the following (unless caused
by a Force Majeure event or a breach of this Agreement by the District) shall constitute a
“Poseidon Event of Default” under this Agreement:
14.1.1 Failure to Deliver Water Supply. Poseidon’s failure to deliver at least
(i) eighty seven and one half percent (87.5%) of the Product Water required to be delivered to
the District in accordance with the Delivery Regime for any Year Period and (ii) at least 50% of
the Product Water required to be delivered to the District in accordance with the Delivery
Regime for the six (6) month period commencing on the Commercial Operation Date. For the
purpose of this Section 14.1.1 and Section 14.3.2, “Year Period” shall mean, as of any day
commencing on or after the one (1) year anniversary of the Commercial Operation Date, the
three hundred and sixty five (365) days immediately preceding such day;
14.1.2 Extended Water Supply Shortfall. Poseidon’s failure to supply at least
the Threshold amount of the Product Water required to be delivered to the District pursuant to
the Delivery Regime for any five (5) out of eight (8) Water Years (an “Extended Shortfall’);
provided, however that the occurrence of an Extended Shortfall shall not constitute a Poseidon
Event of Default unless upon such occurrence: (i) the District is unable to acquire water from an
alternative source sufficient to make up the shortfall in the Contract Capacity to be provided to
the District hereunder, or (ii) the blending of Product Water with alternative supplies of water
obtained by the District to make up such shortfall has a material adverse effect on the quality of
water in the Distribution System.
14.1.3 Failure to Meet Water Quality Standards. Poseidon’s failure to comply
~~ ~~ ~~ ~-~~~ ~- ~ with its obligations under Section 8.2;
14.1.4 Failure to Perform. Poseidon‘s failure to observe or perform any of the
provisions of this Agreement to be observed or performed by Poseidon (other than the failure to
deliver Product Water, to which Sections 14.1.1 and 14.1.2 apply, or the failure to comply with
22
DSMDB.1760968.I2A
.
Section 8.2, to which Section 14.1.3 applies), where such failure shall Continue for a period of
thirty(30) days after written notice of such failure from the District to Poseidon; provided,
however, that if the nature of Poseidon's default under this Section 14.1.4 is such that more than
thirty (30) days are required for its cure, then Poseidon shall not be deemed to be in default if
Poseidon commences such cure within such thirty(30) day period and thereafter diligently
prosecutes such cure to completion;
14.1.5 Failure to Perform Related Agreements. The occurrence of an event of
default of Poseidon under any other agreement between the Parties which specifically provides
that an event of default under such agreement shall constitute an Event of Default under this
Agreement;
14.1.6 Representations and Warranties. Any representation or warranty under
Section 16 of this Agreement was, when made or supplied, materially untrue and (i) such
misrepresentation shall continue uncured for thirty(30) or more days from the date Poseidon
notifies the Disnict of such misrepresentation or (ii) Poseidon fails to notify the District of such
misrepresentation within thirty(30) days after Poseidon has knowledge of such
misrepresentation; and
14.1.7 Bankruptcy. The making by Poseidon of any general arrangement or
assignment for the benefit of creditors; Poseidon's becoming bankrupt, insolvent or a "debtor" as
defined in the United States Bankruptcy Code or any successor statute (unless, in the case of a
petition filed against Poseidon, such petition is dismissed within ninety(90) days after its
original filing); the institution of proceedings under the bankruptcy or similar laws in which
Poseidon is the debtor or bankrupt; the appointing of a trustee or receiver to take possession of
substantially all of Poseidon's assets or of Poseidon's interest in this Agreement (unless
possession is restored to Poseidon within ninety(90) days after such taking); the attachment,
execution or judicial seizure of substantially all of Poseidon assets or Poseidon's interest in this
Agreement (unless such attachment, execution or judicial seizure is discharged within ninety
(90) days after such attachment, execution or judicial seizure).
14.2 District's Remedies.
14.2.1 General. Subject to Section 14.2.2 below, if a Poseidon Event of Default
as set forth above shall occur, the District, upon the lapse of the applicable cure period, if any, as
also set forth above, may terminate this Agreement andor pursue any remedy available to it at
law or in equity, including without limitation commencing an action against Poseidon for
damages recoverable under Section 14.5 incurred by the District in connection with any such
event of default.
14.2.2 Transfer of Project. In lieu of pursuing any remedy available to it at law
or in equity as a resultofaPi5ieiGnEDefauIt a€teF fie Co~~cl'aTOpeition Ete, the
District shall have the option to terminate the Agreement and take possession of the Project upon
(i)payment to Poseidon of an amount sufficient to prepay in full Poseidon's indebtedness
incurred for the Project, including all unpaid principal interest, fees and any other amounts
(including breakage, prepayment or termination costs) payable to Poseidon's lenders and
23
DSMDB.1760968.12A
(ii) receipt of any consent necessary under the lease agreement between Poseidon and Cabrillo
Power I LLC.
14.2.3 Step-In Right. If a Poseidon Event of Default shall occur after the
Commercial Operation Date and the Project is not in operation, the District may enter the Site
and operate the Project (the “Step-In Right”) until such time as the District receives a notice
from Poseidon that it is ready to re-commence the operation of the Project. If the District elects
to exercise its Step-In Right: (i) the District shall operate the Project in accordance with
Applicable Laws and Prudent Industry Practice, (ii) the District shall use reasonable efforts to
provide Product Water as required pursuant to any agreement between Poseidon and third-party
purchasers and (iii) all amounts reasonably incurred by the District for operating and capital
expenditures made with respect to the Project shall be credited against amounts owed by the
District under this Agreement. The District’s Step-ln Right shall terminate upon the termination
of this Agreement.
143 Default by District. The occurrence of any of the following (unless caused by
a Force Majeure event or a breach of this Agreement by Poseidon) shall constitute a “District
Event of Default” under this Agreement:
14.3.1 Failure to Pay. The District’s failure to pay amounts under this
Agreement as and when due, where such failure shall continue for a period of fifteen (1 5) days
after the District has received an Overdue Notice from Poseidon;
14.3.2 District Failure to Accept Product Water. The District’s failure to:
(i) accept at least eighty-seven and one half percent (87.5%) of the Product Water required to be
accepted by the District in accordance with the Delivery Regime for any Year Period.
14.33 Failure to Perform. The District‘s failure to observe or pedorm any of
the provisions of this Agreement to be observed or performed by the District (other than the
failure to make any payments under this Agreement, to which Section 14.3.1 applies or the
failure to accept Product Water, to which Section 14.3.2 applies), where such failure shall
continue for a period of thirty (30) days after written notice of such failure from Poseidon to the
District; provided, however, that if the nature of the District’s default is such that more than
thirty (30) days are required for its cure, then the District shall not be deemed to be in default if
the District commences such cure within such thirty (30) day period and thereafter diligently
prosecutes such cure to completion;
14.3.4 Failure to Perform Related Agreements. The occurrence of an event of default of the District under any other agreement between the Parties which specifically provides
that an event of default under such agreement shall constitute an Event of Default under this
Agreement; and
~~~~~ - - __ -~ ~__ - ~~~ ~
14.3.5 Representations and Warranties. Any representation or warranty under Section 15 of this Agreement was, when made or supplied, materially untrue and (i) such
misrepresentation shall continue uncured for thirty (30) or more days from the date the District
notifies Poseidon of such misrepresentation, or (ii) the District fails to noti@ Poseidon of such
24
DSMDB.1760968.I2A S3
b .
misrepresentation within thirty(30) days after the District has knowledge of such
misrepresentation.
14.4 Poseidon's Remedies. If a District Event of Default as set forth above shall
occur, Poseidon, upon the lapse of the applicable cure period, as also set forth above, may
terminate this Agreement andor pursue any remedy available to it at law or in equity,
including without limitation commencing an action against the District for damages
recoverable under Section 14.5 incurred by Poseidon in connection.~th any such event of
default,
14.5 Damages Recoverable. For the breach of a contractual obligation under this
Agreement, the measure of damages is the amount which will compensate the non-breaching
party for the detriment proximately caused thereby, or which, in the ordinary course of things,
is foreseeable as a probable result of the breach, subject to any applicable defenses with respect
to such damages. Loss may be foreseeable as a probable result of the breach (a) in the ordinary
course of events, or @) as a result of special circumstances, beyond the ordinary course of
events, of which as of the Effective Date the breaching party knew or should have known.
Damages are not recoverable for loss that the breaching party did not have reason to foresee as
of the Effective Date as a probable result of the breach.
15. REPRESENTATIONS AND WARRANTIES OF THE DISTRICT. The District hereby
makes the following representations and warranties to Poseidon, as of the Effective Date and
(unless specifically made only as of the Effective Date) as of the Commercial Operation Date:
15.1 Organization. The District is a municipal water dishict, organized and validly
existing under the laws of the State of California.
15.2 Authorization. The District has the power and authority to enter into and to
perform its obligations under this Agreement. The District has: (a)duly authorized this
Agreement; (b) approved the execution and delivery of this Agreement; and (c) duly executed
and delivered this Agreement by a duly authorized individual.
15.3 Enforceability. This Agreement constitutes the valid and legally binding
obligation of the District, enforceable against the District in accordance with its terms.
15.4 Governmental Consents. No Legal Entitlement from any Governmental
Authority is required in connection with the execution and performance of this Agreement by the
District. All Legal Entitlements required in connection with the District's performance of this
Agreement will be obtained as and when required by Applicable Laws.
15.5 No Litigation. As of the Effective Date, there is no action, suit, proceeding or
imt&tbxr ptndirrg-or; &-the IXstrictkaCttlat hdcdgq thrmtmd against the Diskict
which, if adversely determined, would affect the validity of this Agreement.
15.6 No Conflict. The execution and performance of this Agreement by the District
does not breach or constitute a default by the District under any law, regulation, ruling, court
DSMDB.1760968.1U
25 5-d
'I
1
order, agreement, indenture, certificate of preference, or undertaking or other instrument to
which the District is a party or by which the District or any of its property may be bound or
affected.
16. REPRESENTATIONS AND WARRANTIES OF POSEIDON. Poseidon hereby makes
the following representations and warranties to the District, as of the Effective Date and (unless
specifically made only as of the Effective Date) as of the Commercial Operation Date:
16.1 Organization. Poseidon is a limited liability company, duly formed and validly
existing under the laws of the State of Delaware, and duly qualified to do and doing business in
the State of California.
16.2 Authorization. Poseidon has the power and authority to enter into and to
perform its obligations under this Agreement. Poseidon has: (a) duly authorized this Agreement;
(b) approved the execution and delivery of this Agreement; and (c) duly executed and delivered
this Agreement by a duly authorized individual.
16.3 Enforceability. This Agreement constitutes the valid and legally binding
16.4 Governmental Consents. No Legal Entitlement from any Governmental
Authority is required in connection with the execution and performance of this Agreement. by
Poseidon. A11 Legal Entitlements required in connection with Poseidon's performance of this
Agreement will be obtained as and when required by Applicable Laws.
obligation of Poseidon, enforceable against Poseidon in accordance with its terms.
16.5 No Litigation. As of the Effective Date, there is no action, suit, proceeding or
investigation pending or, to Poseidon's actual knowledge, threatened against Poseidon which, if
adversely determined, would affect the validity of this Agreement.
16.6 No Conflict. The execution and performance of this Agreement by Poseidon
does not breach or constitute a default by Poseidon under any law, regulation, ruling, court order,
agreement, indenture, certificate of preference, or undertaking or other instrument to which
Poseidon is a party or by which Poseidon or any of its property may be bound or affected.
17. FORCE MAJEURE.
17.1 Defined. "Force Majeure" as used herein means any act, event or condition
affecting the Project, the District, Poseidon or any of the District's or Poseidon's respective
subcontractors to the extent that it materially and adversely affects the ability of either Party to
perfom any obligation under this Agreement (except for payment obligations) as long as such
act, event or condition is beyond the reasonable control of such Party and is not a result of the
willfd or negligent actbaof the Pady relying therm Neither Party shaIl ha= any right to
obtain reimbursement from the other Party for the costs of any Force Majeure event.
17.2 Force Majeure Examples. Acts or events constituting Force Majeure may
include without limitation the following: (a)an act of God (but not including reasonably
DSMDB. 1760968.1 2A 26 S9
anticipated weather conditions for the geographic area of the Project), landslide, earthquake, fire,
explosion, flood, sabotage or similar occurrence; (%)acts of a public enemy, extortion, war,
blockade or insurrection, riot or civil disturbance; (c)the failure of any appropriate
Governmental Authority or private utility to provide and maintain utilities; (d) strikes, lock outs,
work stoppages or labor disputes (other than those of employees of Poseidon); (e) underground
or latent conditions not known prior to the date of this Agreement; Qthe presence at, on or
under the Project of (i) subsurface structures, materials, or conditions having historical,
geological, archaeological, religious or similar significance or (ii) any habitat of an endangered,
environmentally sensitive, or protected species; (g)the presence of hazardous waste or
biologically toxic substances at, on or under the Project unless caused by the Party claiming
Force Majeure; (h) the inability to obtain influent water of sufficient quantity or quality; (i) a
Change in Law that would materially and adversely affect the ability of either Party to perform
any material obligation under this Agreement; (i) any denial of an application for or a delay in
the review, issuance or renewal of, or the suspension, termination or interruption of, any permit
or other governmental consent; and (k) a suspension of delivery of Product Water pursuant to
Section 8.5.
17.3 Events Not Deemed Force Majeure. It is specifically understood that, Section
17.2 notwithstanding, none of the following acts, events or conditions shall constitute a Force
Majeure event: (a) strikes, lock outs, work stoppages or labor disputes of employees of Poseidon;
(b) the failure of any subcontractor or supplier for any reason to furnish labor, materials, services
(other than utility service) or equipment unless the failure results fiom a Force Majeure event
affecting the subcontractor or supplier; (c) equipment failure (unless caused by a Force Majeure
event); or (d) any denial of an application for or a delay in the review, issuance or renewal of, or
the suspension, termination or interruption of, any permit or other governmental consent, if
caused by Poseidon's failure to apply for or use commercially reasonable efforts to prosecute the
application for such permit or governmental consent.
17.4 Excused Performance.
17.4.1 Occurrence of Force Majeure Event. Upon the occurrence of a Force
Majeure event which affects a Party to this Agreement, such Party shall be excused fiom its
obligations under the Agreement (except for payment obligations) for the period during which it
is unable to comply with such obligations as a result of the Force Majeure event.
17.4.2 Notification and Mitigation. Any excuse of obligations of a Party under
this Agreement pursuant to Section 17.4.1 is subject to the proviso that, upon obtaining
knowledge of a Force Majeure event such Party: (a)promptly notifies the other Party of such
Force Majeure event; (b) provides reasonable details reIating to such Force Majeure event; and
(c) implements mitigation measures to the extent commercially reasonable.
18. IUGHT OF FflRST OFFER. ~
~ ~
18.1 Restriction on Transfer, Except as provided in Section 21.16, Poseidon shall
not voluntarily or involuntarily, by operation of law or otherwise, give, sell, assign, transfer,
donate, pledge, mortgage, hypothecate or encumber (any such disposition is hereinafter referred
27
to as “Transfer”), all or any portion of its interest in the Project (hereinafter a “Property Interest”)
without first complying with the provisions of Section 18.2 of this Agreement. Except as
provided in Section 21.16, any purported Transfer of a Property Interest without compliance
with the provisions of this Agreement shall be void and of no force or effect.
18.2 Right of First Offer.
18.2.1 Notice of Transfer. If Poseidon desires to Transfer a Property Interest,
Poseidon shall first give written notice (the “Request”) to the District of Poseidon’s desire to
Transfer a Property Interest, requesting that the District provide Poseidon with an offer to
purchase the Property Interest.
18.2.2 District Offer. The District shall be entitled, but not required, within
ninety (90) days following delivery of the Request, to deliver a written offer (an “Offer”) to
Poseidon specifying the price and the other terms pursuant to which the District would be willing
to purchase the Property Interest. Poseidon shall be entitled, but not obligated, to accept the
Offer, within sixty(60) days after the delivery of the Offer (the “Acceptance Deadline”) by
sending a written acceptance of such Offer to the District (“Accepted Offer”). If Poseidon does
not accept the Offer by the Acceptance Deadline, the Offer shall be deemed to have been
rejected.
18.2.3 Closing. The closing of the Transfer of the Property Interest in
accordance with an Accepted Offer shafl be upon a mutually agreed date (but no later than
ninety (90) days following the Acceptance Deadline). The District shall deliver the purchase
price at the closing and at or prior to the closing the Parties shall execute and deliver such other
documents as are reasonably necessary to consummate the Transfer of the Property Interest upon
the terms set forth in the Accepted Offer.
18.2.4 Subsequent Transfer. If after an Offer has been rejected or deemed
rejected Poseidon desires to sell the Property Interest, Poseidon may, at any time within one
hundred eighty (1 80) days after the Acceptance Deadline, Transfer such Property Interest to any
third party upon terns (i) no less favorable in the aggregate as those contained in the rejected
Offer or (ii) less favorable in the aggregate as those contained in the rejected Offer, subject to the
District having ninety (90) days to elect to acquire the Property Interest on such less favorable
terms. If a sale of the Property Interest does not occur within one hundred eighty (180) days
after an Offer has been rejected or deemed rejected, Poseidon shall not consummate such sale
without again complying with the provisions of this Section 18.2.
19. DISPUTE RESOLUTION. The Parties shall establish prior to the Commercial Operation
Date, or sooner in the event a dispute arises prior to such a date, a dispute coordination
committee (the “Committee”) consisting of two (2) management representatives each from
Posei&n and fie DimcX and ail hEepen&ent repesentaie (the "independent Representativen).
The Independent Representative shall be mutualIy acceptable to both Parties and shall be a
person either with (i) experience in the construction and operation of facilities such as the Project
or (ii) such other qualifications as are relevant with respect to a particular dispute. The Parties
may change the Independent Representative upon mutual agreement. The Parties shall provide
28
DSMD0.I 760968.12A 61
,
? I
written notice of appointment of their respective Committee representatives to the Independent
Representative promptly following the date the Committee is established. If either Party's
representatives change, such Party shall promptly notify the other Party and the Independent
Representative of the change. The Committee shall meet as the circumstances may deem
necessary to resolve any disputes under this Agreement. All disputes arising from this
Agreement shall be submitted to the Committee for resolution as a condition precedent to
seeking any other relief under this Agreement. The fees and expenses of the Independent
Representative shall be shared equally by the Parties. If the procedures referenced in this
Section do not result in resolution of the dispute within ten (10) business days after
commencement of the Committee meeting: (a) the Parties, upon mutual agreement, may submit
the dispute to binding or advisory arbitration for resolution in accordance with such procedures
as are mutually agreed; or (b) either Party may commence legal action in a court of competent
jurisdiction to enforce or interpret the terms of this Agreement.
20. INDEMNITY.
20.1 District's Indemnity. The District shall save, indemnify, hold harmless and
defend (with counsel reasonably acceptable to Poseidon), Poseidon, its successors, assigns and
affiliates, and their respective officers, directors, controlling persons (if any), employees,
attorneys, agents, consultants and shareholders (the "Poseidon Indemnitees") from, against and
in respect of any and all claims (including third party claims), suits, actions, proceedings
(formal and informal), investigations, judgments, deficiencies, damages, settlements and
liabilities (collectively "Losses") as and when incurred by any of the Poseidon Indemnitees
arising out of or based upon any breach or alleged breach of any express representation,
warranty, covenant, or agreement of the District contained in this Agreement or in any
document, instrument, or agreement executed and delivered by the Parties in connection
herewith which specifically provides for the applicability of the indemnity provisions of this
Agreement. The District shall not, however, be required to indemnify any of the Poseidon
Indemnitees to the extent any Losses arise fiom or relate to the gross negligence or willfbl
misconduct of any of the Poseidon Indemnitees.
20.2 Poseidon's Indemnity. Poseidon shall save, indemniw, hold harmless and
defend (with counsel reasonably acceptable to the District), the District, its successors, assigns
and affiliates, and their respective officers, directors, controlling persons (if any), staff
members, employees, attorneys, agents and consultants (the "District Indemnitees") from,
against and in respect of any and all Losses arising out of or based upon any breach or alleged
breach of any express representation, warranty, covenant, or agreement of Poseidon contained
in this Agreement or in any document, instrument, or agreement executed and delivered by the
Parties in connection herewith which specifically provides for the applicability of the
indemnity provisions of this Agreement. Poseidon shall not, however, be required to
indemnifL any af the District Indedtees to the extent any Losses &se from or relate to the
gross negligence or willful misconduct of any of the District Indemnitees.
20.3 Indemnification Procedures. Each Party's obligations with respect to this
Section 20 are subject to the condition that the indemnified Party gives the indemnifying Party
reasonably prompt notice of any Losses for which indemnification is sought hereunder. The
29
DSMDB.1760968.12A
.
indemnified Party shall cooperate in the defense of such claim (and pending assumption of
defense, an indemnified Party may take such steps to defend against such claim as, in such
indemnified Party’s good faith judgment, are appropriate to protect its interests). The
indemnifjmg Party shall pay such indemnified Party’s reasonable out-of-pocket expenses
incurred in connection with such cooperation. The indemnifLing Party shall keep the
indemnified Party reasonably informed as to the status of the defense of such claim. After
notice from the indemnifling Party to an indemnified Party of the assumption, and the defense
of a claim, the indemnifylng Party shall not be liable to such indemnified Party for any legal or
other expenses subsequently incurred by such indemnified Party in connection with the
defense thereof other than those expenses referred to above. The indemnifling Party at the
indemnifjmg Party’s own expense and through counsel chosen by the indemnifying Party
(which counsel shall be reasonably acceptable to the indemnified Party), shall defend any
claim; provided, however, that if, in the indemnified Party’s and the indemnifying Party’s
reasonable judgment at any time, either a conflict of interest arises between such indemnifying
Party and the indemnified Party or if there are defenses which are different from or in addition
to those available to the indemnifying Party andlor the indemnified Party and the
representation of both parties by the same counsel would be inappropriate, then such
indemnified Party shall have the right to employ one law fm as counsel, together with a
separate local law fm in each applicable jurisdiction (if necessary) (“Separate Counsel”), to
represent such indemnified Party in any action or group of related actions (which firm or firms
shall be reasonably acceptable to the indemnifying Party), and in that event: (a) the reasonable
fees and expenses of such Separate Counsel shall be paid by the indemnifying Party (it being
understood, however, that the indemnifying Party shall not be liable for the expenses of more
than one Separate Counsel (excluding such local counsel referred to above) with respect to any
claim (even if against multiple indemnified Parties)); and (b) the indemnifying Party shall have
the right to conduct its own defense in respect of such claim. If the indemnifying Party does
not defend against a claim, the indemnified Party may defend, compromise and settle such
claim and shall be entitled to indemnification hereunder (to the extent permitted by this
Agreement). Notwithstanding the foregoing, the indemnifjing Party shall not, without the
prior written consent of the indemnified Party (which consent shall not be unreasonably
withheld, conditioned or delayed), settle or compromise any claim or consent to the entry of
any judgment unless: (x)there is no finding or admission of any violation of law or any
violation of the rights of any person and no effect on any other claims that may be made
against the indemnified Party; and (y) the sole relief provided is monetary damages that are
paid in full by indemnifling Party.
21. MISCELLANEOUS.
21.1 Further Actions. At any time and from time to time after the date hereof, each
Party agrees to take such actions and to execute and deliver such documents as the other Party
may re;rsonably request to effectuate the purposes of this Agmxnenk ~
21.2 Amendment. Except as otherwise provided in this Agreement, neither this
Agreement nor any provision hereof may be waived, modified, amended, discharged, or
terminated except by an instrument in writing signed by the Party against which the enforcement
DSMDB. 1760968.12A
30 3
4
of such waiver, modification, amendment, discharge or termination is sought, and then only to
the extent set forth in such writing.
21.3 Entire Agreement. This Agreement constitutes the entire understanding
among the Parties with respect to the matters set forth herein, and supersedes all prior or
contemporaneous understandings or agreements among the Parties with respect to the subject
matter hereof, whether oral or written.
21.4 Notices. Any notice, approval, consent, waiver or other communication
required or permitted to be given or to be served upon any Party in connection with this
Agreement shall be in writing. Such notice shall be personally served, sent by facsimile, sent
prepaid by registered or certified mail with retum receipt requested, or sent by reputable
overnight delivery service, such as Federal Express, and shall be deemed given: (a) if personally
served, when delivered to the Party to whom such notice is addressed; (b) if given by facsimile,
when sent, provided that the confhation sheet from the sending fax machine confirms that the
total number of pages were successfidly transmitted; (c) if given by prepaid or certified mail
with retum receipt requested, on the date of execution of the return receipt; or (d) if sent by
reputable overnight delivery service, such as Federal Express, when received. Such notices shall
be addressed to the Party to whom such notice is to be given at the address specified below or as
such Party shall otherwise direct in writing to the other Parties delivered or sent in accordance
with this Section. The "copy to" notice to be given as set forth below is a courtesy copy only; a
notice given to such person is not sufficient to effect giving a notice to the principal Party, and a
failure to give such a courtesy copy of a notice does not constitute a failure to give notice to the
principal Party.
If to District, to:
With a copy to:
If to Poseidon, to:
Carlsbad Municipal Water District
5950 El Camino Real
Carlsbad, CA 92008
Attn: General Manager
Fax NO. (760) 43 1 - 160 1
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Attn: City Attorney
Fax NO. (760) 434-8367
Poseidon Resources (Channelside) LLC
501 West Broadway, Suite 840
San Eego, CA. 92IOI ~
Attn: President
Fax No. (619) 595-7892
31
DSMDB.1760968.12A 6Y
a
21.5 Controlling Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California, without giving effect to any
choice-of-law or conflicts-of-laws rule or principle that would result in the application of any
other laws.
21.6 Headings. Headings, titles and captions are for convenience only and shall not
constitute a portion of this Agreement or be used for the interpretation thereof.
21.7 Cumulative Rights; Waiver. The rights created under this Agreement, or by
law or equity, shall be cumulative and may be exercised at any time and from time to time. No
failure by any Party to exercise, and no delay or omission on the part of any Party in exercising
any rights, shall be construed or deemed to be a waiver thereof, nor shall any single or partial
exercise by any Party preclude any other or fbture exercise thereof or the exercise of any other
right. Any waiver of any provision or of any breach of any provision of this Agreement must be
in writing, and any waiver by any Party of any breach of any provision of this Agreement shall
not operate as or be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of any Party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not be considered or
construed or deemed a waiver of any provision or any breach of any provision of this Agreement
or deprive that Party of the right thereafter to insist upon strict adherence to that term or
provision or any other term or provision of this Agreement.
21.8 Liberal Construction. This Agreement constitutes a fully-negotiated
agreement among commercially sophisticated Parties, each assisted by legal counsel, and the
terns of this Agreement shall not be construed or interpreted for or against any Party hereto
because that Party or its legal representative drafted or prepared such provision.
21.9 Severability. If any provision of this Agreement shall be ruled invalid, illegal
or unenforceable, then the Parties shall: (a) promptly negotiate a substitute for such provision
which shall, to the greatest extent legally permissible, therein effect the intent of the Parties in
such invalid, illegal or unenforceable provision; and (b) negotiate such changes in, substitutions
for or additions to the remaining provisions of this Agreement as may be necessary in addition to
and in conjunction with clause (a) above to give effect to the intent of the Parties without the
invalid, illegal or unenforceable provision. To the extent that the Parties are able to negotiate
such changes, substitutions or additions as set forth in the preceding sentence, and the intent of
the Parties with respect to the essential terms of the Agreement may be carried out without the
invalid, illegal or unenforceable provision, then the balance of this Agreement shall not be
affected, and this Agreement shall be construed and enforced as if such invalid, illegal or
unenforceable provision did not exist.
21.10 Good Faith and Fair -~ Dealing. ~ The Parties hereto acknowledge and agree that
the performances required by the provisions of this Agreement shall be undertaken h good faith,
and with all Parties dealing fairly with one another.
21.11 No Third Party Beneficiaries. Subject to Section 20, this Agreement does not
create, and shall not be construed to create, any rights enforceable by any person, partnership,
32
DSMDB.1760968.lU
I t
corporation, joint venture, limited liability company or other form of organization or association
of any kind that is not a party to this Agreement.
21.12 Execution in Counterparts; Facsimile Signatures. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. The signature page of any counterpart may be
detached therefiom without impairing the legal effect of the sipture(s) thereon, provided such
signature page is attached ts any other counterpart identical thereto except for having an
additional signature page executed by the other Party. Each Party agrees that the other Party
may rely upon the facsimile signature of a Party on this Agreement as constituting a duly
authorized, irrevocable, actual, current delivery of this Agreement as Mly as if this Agreement
contained the original ink signature of the Party supplying a facsimile signature.
21.13 Time of the Essence. The is of the essence of each and every provision of
this Agreement. Unless business days are expressly provided for, all references to "days" herein
shall refer to consecutive calendar days. If any date or time period provided for in this
Agreement is or ends on a Saturday, Sunday or federal, state or legal holiday, then such date
shall automatically be extended to the next day which is not a Saturday, Sunday or federal, state
or legal holiday.
Each Party shall deliver to the other Party copies of such
resolutions, certificates or written assurances evidencing authorization to execute, deliver and
perform this Agreement.
21.14 Authority.
21.15 Number, Gender. Where a word or phrase is defined in this Agreement, its
other grammatical forms have a corresponding meaning. As used herein, and as the
circumstances require, the plural term shall include the singular, the singular shall include the
plural, the neuter term shall include the masculine and feminine genders, the masculine term
shall include the neuter and the feminine genders, and the feminine term shall include the neuter
and the masculine genders.
21.16 Assignment.
21.16.1 Assignment by Poseidon. Except as otherwise specifically permitted
by Section 18 and this Section 21.16, neither this Agreement nor any of the rights, interests, or
obligations hereunder may be assigned by Poseidon without the District's prior written consent,
which consent may be withheld in the District's sole discretion. Poseidon shall not assign its
rights under this Agreement to any third party if such third party would not be obligated to
comply with Applicable Laws with respect to its ownership and operation of the Project.
Poseidon shall transfer its rights and obligations under this Agreement to any transferee of
Poseidon's rights with respect to the Project.
~ ~ ~~ ~ ~~~~ - ~ ~
21.16.2 Financing Assignments. Poseidon may, Without the consent of the
District make such assignments as are necessary to create security interests for the financing of
any of its obligations under this Agreement with bona fide third party lenders in bona fide loan
transactions. In the event of such an assignment by Poseidon the District shall hrnish such
33
DSMDB.1760968.12A
,
1 .
information, consents, certificates, opinions of counsel and other documentation or assistance
related to this Agreement as is reasonable and customary and mutually agreed by the Parties.
Such consents shall include an undertaking by Poseidon’s lenders not to terminate this
Agreement as long as the District continues to perform its obligations hereunder and to
cooperate with the District in any exercise by the District of its rights under Section 14.2.2.
21.16.3 Assignment by the District. Neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned by the District without Poseidon’s
prior written consent, which consent may be withheld in Poseidon’s sole discretion. As a
condition to Poseidon’s consent to such assignment, Poseidon shall have the right to negotiate
changes to the terns of this Agreement with the District’s assignee, including but not limited to
changes to provisions addressing: (i) differences between the Base Price and the Avoided Water
Cost, (ii) termination events, (iii) testing and responsibility for water distribution systems, (iv)
the Delivery Point and the Appurtenant Facilities; (v) the conditions to the District’s obligations
to purchase Product Water and (vi) defaults and remedies.
21.16.4 General. Any assignment of this Agreement or any of the rights,
interests, or obligations hereunder shall be of no force or effect until the proposed assignee
agrees in writing to be bound by all of the terms and conditions of this Agreement and such
signed writing is delivered to the non-assigning party.
21.16.5 Inurement. Subject to the foregoing restrictions, the provisions of this
Agreement shall be binding upon and inure to the benefit of all affiliates, subsidiaries, assigns,
and successors-in-interest of the Parties. Without limiting the generality of the foregoing, the
voluntary or involuntary dissolution of Poseidon or any merger, reorganization or consolidation
where Poseidon is not the surviving or resulting entity, or any transfer by Poseidon of all or
substantially all of its assets shall be deemed to be an assignment within the meaning of this
Section.. In such event, provided the District consents to any such voluntary or involuntary
dissolution, merger, reorganization, consolidation, or transfer of assets, the surviving or resulting
district, authority, agency, corporation, partnership, joint venture, limited liability company,
public entity or other form of organization or association to which such assets shall be
transferred or which is canying on the business of Poseidon shall be obligated to perform
Poseidon’s obligations hereunder.
21.17 Relationship. Poseidon is an independent contractor and the relationship
between the Parties shall be limited to performance of this Agreement in accordance with its
terms. Neither Party shall have any responsibility with respect to the services to be provided or
contractual benefits assumed by the other Party. Nothing in this Agreement shall be deemed to
constitute either Party a partner, agent or legal representative of the other Party. No liability or
benefits, such as workers’ compensation, pension rights or liabilities, other provisions or
liabilities arising ~~ out ~ of or ~ related to ~~~ a contract for hire or employer/employee relationship, shall
&se or accrue to any Party’s agent or employee as a result of this Agreement or its performance.
21.18 Agreement Not a Discretionary Approval. The execution of this Agreement
and its performance prior to the date on which the Project has been approved under CEQA, (the
“Approval Date”) (if and when such date shall occur) shall not be deemed or construed to
34
DSMDB.1760968.12A 63
constitute any discretionary approval of the Project or any part thereof-that is required from the
City, the District or the RDA. The District shall file a Notice of Exemption under CEQA for
the execution of this Agreement prior to the Approval Date, and shall file a Notice of
Determination under CEQA for the District as responsible agency under CEQA, if and when the
Approval Date shall occur. Poseidon agrees to reimburse the District for any legal fees and costs
incurred by or awarded against the District in connection with any third party claim or suit
challenging the District’s actions under CEQA with respect to the Project to the same extent
Poseidon is obligated to reimburse the City for such amounts pursuant to that certain agreement
between the City and Poseidon dated January 21,2004.
21.19 Financing of the Project. Poseidon agrees that it will not incur indebtedness
secured by the Project in excess of (i) with respect to the initial financing of the Project, the
projected cost of the Project as of the date such indebtedness is incurred and (ii) with respect to
any subsequent financing of the Project, the fair market value of the Project as of the date such
indebtedness is incurred.
21.20 Project and Site Devoted to Public Use!. This Agreement grants certain
contractual rights to the District, including but not limited to the right to purchase Product
Water from Poseidon, the right of first offer described in Section 18 of this Agreement, and the
right to exercise the options described in Sections 2 and 14.2.2 of this Agreement. The Parties
intend by the grant of these rights to devote the Project and Poseidon’s interest in the Site to
public use by the City and the District to the extent of the Contract Capacity, under the terms
and conditions of this Agreement. The fact that the Project and the Site have been
appropriated to public use by the City and the District to the extent provided herein shall not
give the City or the District any additional rights not specifically set forth in this Agreement,
but instead reflects the District’s independent judgment that this Agreement and Poseidon’s
use of the Site is integral to the District’s public purpose of providing water to District and
City residents. The rights the District has established under this Agreement result in the
Project, the Site and Poseidon’s interest in the Site being “appropriated to public use by a local
public entity [(the City and the District)]’’ for the purposes of California Code of Civil
Procedure 0 1240.660.
21.21 Recordation of Agreement. The Parties shall record this Agreement.
21.22 Security. As security for its obligations under this Agreement, including
without limitation Sections 6.2, 7.1,7.2.3,8.2, 8.5, 9.7, 10.2, 12.2 and 20.2 hereof, prior to the
Commercial Operation Date Poseidon shall obtain and maintain an irrevocable, standby letter
of credit (or such other form of security reasonably acceptable to the District) in the amount of
Two Million Five Hundred Thousand Dollars ($2,500,000). If such security (the “Security”) is
provided in the form of a letter of credit (the “LOC”), such LOC shall: (a) be issued by a
finincia1 institution (i) having an investment grade long-term, unsecured senior debt rating
from Standard & Poor‘s Corporation or Moody’s Investors Service, Inc; or (ii) is othe&se
reasonably acceptable to the District; (b) name the District as beneficiary; (c) have a minimum
term of one (1) year; (d) automatically extend for not less than six (6) months unless the
issuing financial institution provides at least thirty (30) days prior written notice of termination
or non-renewal to the District; (e) provide for the District to make drawings thereon: (i) after
35
DSMDB.1760968.IZA 68
.
the Occurrence of a Poseidon Event of Default, in the amount of any finally adjudicated amount
payable to the District under this Agreement by Poseidon or (ii) in the full amount of the LOC
in the event the issuing financial institution provides the notice of termination or non-renewal
described in clause (d) above and (9 otherwise be in form and substance reasonably acceptable
to the District. The District shall return the Security to Poseidon contemporaneously with any
termination of this Agreement pursuant to Section 14.2.2. If Poseidon fails to obtain the
Security as required by this Section 2 1.22, or if Poseidon fails to replenish the amount of such
Security after a drawing thereon resulting from a Poseidon Event of Default, then the District,
upon written notice to Poseidon, may suspend deliveries of Product Water.
[The balance of this page intentionally left blank]
36
DSMDB.1760968.12A
I
*. .
IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first
above set forth.
"District" "Poseidon"
Poseidon Resources (Channelside) LLC, a
Delaware limited liability company
By:
Its:
Approved as to Form
By :
City Attorney
DSMDB. 1760968.12A
37
a
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT No. 5907
On ~~rswl'orf before me,
personally appeared k hwf 5 4 9
mpersonally known to me - OR - proved to me on the basis of satisfactory evidence
to be the personm whose name@ is/*
subscribed to the within instrument and ac-
knowledged to me that heM&bey executed
the same in his/&&+tmr ' authorized
capacitym), and that by his/-
signaturem on the instrument the person@,
or the entity upon behalf of which the
person('%) acted, executed the instrument.
DATE
NAME@) OF SIWER(S)
SIGNATURE OF NOTAFW
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent
fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT - u INDIVIDUAL
CORPORATE OFFICER
TITLE OR TYPE OF DOCUMENT -6)
0 PARTNER(S) 0 LIMITED
0 AlTORNEY-IN-FACT 0 TRUSTEE(S) 0 GUARDIAN/CONSERVATOR 0 OTHER:
0 GENERAL
NUMBER OF PAGES
DATE OF DOCUMENT
SIGNER IS REPRESENTING: NAME OF PERSON($) OR ENmV(lES)
SIGNER(S) OTHER THAN NAMED ABOVE a-
.
8
Schedule 3
Purchase Price
1. Adiustments to Base Price
la’, Adiustrnent. Commencing at the beginning of the first Water Year and
thereafter at the end of each calendar quarter during the Term, the Base Price in effect for the
upcoming calendar quarter (Base Pricej) shall be adjusted as follows:
BW Pricei= Base Pricehitid x ((70% x (CPIj + CPIl,,jtid)) + (30% x (ECi + EC~tipl)))
Where:
Base PriceKw = the Base Price as detennined pursuant to Section 3.1.1 of the
Agreement (excluding any adjustment pursuant to this Schedule 3)
CPIi = the most recently published value of the CPI as of the first day of calendar
CPIlniu = the most recently published value of the CPI as of the Effective Date
CPI = the Consumer Price Index, All Urban Consumers (CPI-U) (1982-84 = 100)
for the San Diego MSA published by the Bureau of Labor Statistics of the United
States Department of Labor
ECi = the average cost (weighted by the Project’s use of electricity) of electricity
used by the Project (expressed in $/MWH) for the calendar quarteri-1, provided,
however, that for the first adjustment of the Base Price pursuant to this
Agreement, ECi shall be equal to EC~nitid x (CPIilcPI~tid)
quarteri
ECK~~ = $60/MWH
Solely for illustrative purposes, a hypothetical example of the calculation of the
Base Price as of the beginning of the third Water Year is set forth as Attachment
A to this Schedule 3.
@) Change in Index. If a substantial change is made in the manner in which
the CPI is calculated, then the CPI will be adjusted to the figure that would have been used had
the rnanner of computing the CPI in effect at the date of this Agreement not been altered. If the
CPI (or a successor or substitute index) is not available, a reliable governmental or other
nonpartisan publication evaluating the information used in determining the CPI will be used. No
adjustments will be made due to any revision that may be made in the CPI for any month.
(c) Statements. Within thirty (30) days after the commencement of a Water
Year, Poseidon shall prepare and provide to the District for its review a statement of any
adjustment to the Base Price made pursuant to this Schedule 3.
adjustments made pursuant to this Schedule 3. (d) No Decreases. In no event shall the Base Price be reduced as a result of
1
DSMDB.1760968.12A
2. Avoided Water Cost
(a) Comuonents. The Avoided Water Cost shall equal the sum of: (i)the
SDCWA Price (defined in Paragraph 2(b) below), (ii)the Other Avoided Charges (defined in
Paragraph 2(c) below) and (iii) the Subsidy andor any other new or additional third party
financial support for the District’s purchase of Product Water which the District actually
receives, either in cash or credit, for the applicable Water Year.
SDCWA Price. As used herein, “SDCWA Price” shall mean: the sum of
all of the amounts, whether now or hereafter imposed and however now or hereafter delineated,
named or identified, and whether or not such amounts vary with the amount of water supplied
(with any fixed amounts converted to an applicable per acre-foot amount), that the San Diego
County Water Authority (the “Authority”) charges or would charge the District to supply and
transport water to the District; excluding, however all of the amounts, whether now or hereafter
imposed and however now or hereafter delineated, named or identified, that the District is
required to pay the Authority, after the Commercial Operation Date, to maintain the right to
receive water from the Authority regardless of whether it purchases any water therefrom.
Other Avoided Charges. As used herein, “Other Avoided Charges” shall
mean: the sum of all of the amounts (without duplication of any components of the SDCWA
Price), whether now or hereafter imposed or otherwise incurred and however now or hereafter
delineated, named or identified, and whether or not such amounts vary with the amount of water
supplied (with any fixed amounts converted to an applicable per acre-foot amount), that (i) any
entity other than the Authority charges or would charge the District to supply and transport water
to the District or (ii) are otherwise not incurred by the District from such other entity as a result
of its purchase of Product Water hereunder; excluding, however (x) all of the amounts, whether
now or hereafter imposed and however now or hereafter delineated, named or identified, that the
District is required to pay to such other entity, after the Commercial Operation Date, to maintain
the right to receive water from such other entity regardless of whether it purchases any water
therefrom; and (y) all capital expenditures not incurred by the District as a result of its purchase
of Product Water hereunder.
Adiustment of SDCWA Price. If a change is made in the Authority’s
water rate structure or the methodology used by the Authority to determine its water rates
(collectively, a “Rate Structure Change”) which materially lowers the SDCWA Price, then the
SDCWA Price will be subject to an appropriate adjustment so that the SDCWA Price as so
adjusted will be substantially the same as the SDCWA Price had the Rate Structure Change not
occurred. If the SDCWA ceases to exist, then the SDCWA Price shall thereafter be based on a
rate of the then-largest agency, other than the State of California, delivering and selling water at
wholesale to retail agencies in San Diego County, and the Parties shall negotiate in good faith to
agree on such substitute rate, which shall reflect water cost information substantially equivalent
to the SDCWA Price in effect just prior to SDCWA’s cessation of existence.
@)
(c)
(d)
_- 3. TrackinP Account. -_- -
(a) Additions to Tracking Account. If during all or any portion of a Water
Year the Base Price is greater than the Avoided Water Cost, then at the end of such Water Year
an amount shall be added to a nominal tracking account (the “Tracking Account”) based on the
difference between the Base Price and such Avoided Water Cost, as follows:
2
DSMDB.1760968.12A
I
c’ .
(Base Price minus Avoided Water Cost) times (the number of acre-feet of Product
Water sold to the District in such Water Year or during the portion of such Water
Year that the Base Price exceeded the Avoided Water Cost, as applicable,
including Product Water deemed to be sold pursuant to Section 9.8).
@) Deductions from Tracking Account. If during all or any portion of a
Water Year the Avoided Water Cost is greater than the Base Price and the balance of the
Tracking Account is greater than zero (0), the following amount (the “Deferred Payment”) (up to
the total balance of the Tracking Account) shall be included in the invoice for the last month of
such Water Year and shall be paid by the District to Poseidon:
(Avoided Water Cost minus Base Price) times (the number of acre-feet of Product
Water sold to the District in such Water Year or during the portion of such Water
Year that the Avoided Water Cost exceeded the Base Price, as applicable,
including Product Water deemed to be sold pursuant to Section 9.8).
(c) the balance of the Tracking Account is greater than zero (0), Poseidon’s rights with respect to the
Tracking Account shall terminate; provided however, that if the District has exercised its
Purchase Option, the balance of the Tracking account shall be paid to Poseidon by the District in
addition to the Purchase Option Price.
4. Additional Payment. If during all or any portion of a Water Year the Avoided Water Cost is
greater than the Base Price and the balance of the Tracking Account is zero (0) (taking into
account any deductions fiom the Tracking Account for such Water Year pursuant to Paragraph
3(b) above), a payment (the “Additional Payment”) equal to fifty percent (50%) of the following
amount shall be included in the invoice for the last month of such Water Year and shall be paid
by the District to Poseidon:
Other Tracking Account Provisions. If at the expiration of the Term
((Avoided Water Cost minus Base Price) times (the number of acre-feet of
Product Water sold to the District in such Water Year or during the portion of
such Water Year that the Avoided Water Cost exceeded the Base Price, as
applicable, including Product Water deemed to be sold pursuant to Section 9.8))
minus (any Deferred Payment for such Water Year).
3
DSMDB. 1760968.12A
I * .
f‘ 8
.
Attachment A
Assumptions:
Cumulative adjustment through the beginning of the third Water Year of 7%.
Base Pricel~M = $86l/acre-foot
219.7
205.3
= CPIi
CPIIIlitiaI - -
EC j = $64.20/MwH
$60/MWH
$86l/acre-foot x ((70% x (219.7 + 205.3)) + (30%
x ($64.20/MWH + $60/MWH)))
- - EClniti.1
Base Price i =
= $92 1.3 6/acre-foot
1
DSMDB. i7wtia.12~
4
Schedule 8.2 - Quality Standards
Quality
Parameter”
Sampling Concentration Limits
Central Extreme4
Units Analytical
Method’
Tendency3 sampl: Sample Method period
Chloride I 4110B
oneyear
one year
oneyear
oneyear
1
Weeklygrab mgL 350 400
Weeklygrab mg/L 180 210
Weeklygrab mg/L 0.5 0.8
Weeklygrab mg/L tbd’ 15
Bromide 1 4110B
One
month
Boron I 3120B
Continuous6 NTU 0.3 0.5 Turbidity
SDS-THM9
2130 B
5710 C
SDS-HAA9 I 5710D
SDS-THM’.
SDS-HAA8*9 5710 D &
57 10 D oneyear > 70% of 100% of Monthly Grab:
50%desal& mg/L McL7
50% Aqued MCL7
I Monthly Grab: Img/LI > 70% of I < 100% of
100% Desal MCL7 MCL7 one year
oneyear > 70% of < 100% of
MCL7
Monthly Grab:
50%desal& mg/L McL7
50% Aaued
IMonthly Grab: lmpn1 > 70% of I < 100% of 100% Desal MCL7 MCL7 one year
one
month daily grab ‘F - 85 ‘F
1
DSMDB. 1760968.12A
a
1. All methods taken from Standard Methoh On Line, published by APHA, AWWA,
and WEF.
2. Sample period - concentration limits are calculated for this period
3. Central Tendency - can be exceeded in no more than 50% of samples taken
4. Extreme - can be exceeded in no more than 10% of samples taken
5. Permanent values to be determined pursuant to Section 8.3.
6. Continuous analysis, values at 15 minute intervals used in all calculations
7. Use the MCL that applies in the District’s Distribution system
8. Does not apply if the District is using exclusively Desalinated Water
9. After the first year of testing, fiequency of testing shall be per Applicable Law.
10. All samples to assess compliance with Applicable Law and Schedule 8.2
(except for samples for SDS-THM and SDS-HAA analyses) are to be collected
at mutually agreed upon location at the Project site. All SDS-TMM and
SDS-HAA samples are to be collected at mutually agreed upon locations
in the District’s distribution system, as required by Applicable
Law.
Examples of interpreting the central tendency and the extreme:
a. TDS - Central tendency requirement: no more than 26 samples among any 52
contiguous weekly samples may exceed 350 mgL.
b TDS - Extreme: no more than 5 samples among any 52 contiguous weekly samples
may exceed 400 mg/L.
c. Turbidity - central tendency requirement: no more than 1440 measurements among
2880 contiguous measurements recorded at 15 minute intervals may exceed 0.3 ntu.
d. Turbidity - extreme requirement: no more than 288 measurements among 2880
contiguous measurements recorded at 15 minute intervals may exceed 0.5 ntu.
e. SDS-THM - Central tendency requirement: no more than 6 samples among any 12
contiguous samples may exceed the MCL for THMs which is applicable to the water in
the District’s distribution system at the time the samples are taken.
1
DSMDB.1760968.12A
L
1.
2.
3.
4.
5.
Schedule 12
Insurance
A combination of general and excess liability insurance with a limit of no less than
$50,000,000.00 per occurrence).
Automobile liability insurance at least as broad as Insurance Services Office form
number CA 0001 (Ed. 1/87) covering Automobile Liability Code 1 (any auto) with a
limit of no less than $5,000,000.00 per accident.
Workers’ compensation insurance as required by the State of California and
Employer’s Liability Insurance with an employer’s liability limit of $1,000,000.00
per accident for bodily injury and disease.
Builder’s risk insurance on an all risk basis with a limit of liability no less than the
price of Poseidon’s engineering, procurement and construction contract.
Property insurance equal to the replacement value of the Project.
Deductibles of $100,000.00 or more or self-insured retentions must be declared to and approved
by the District.
DSMDB. 1 760968.12.4
1 c
Project
Parties
Exhibit 13.2.9
Development Agreement Term Sheet
TERM SHEET FOR DEVELOPMENT AGREEMENT
BETWEEN THE CITY OF CARLSBAD
AND POSEIDON RESOURCES (CHANNELSIDE) LLC
Purpose of Term Sheet
PRINCIPAL TERMS
Vesting
Term
RW witri die Leasehofd
Reverse-osmosis seawater desalination plant (the “Project”). The
Project will be located at a site adjacent to the Encina Power
Station in the City of Carlsbad (the “City”).
The City of Carlsbad, the Carlsbad Municipal Water District (the
“District”), the Carlsbad Housing and Redevelopment
Commission (the “RDA”) and Poseidon Resources (Channelside),
LLC (“Poseidon”).
This Term Sheet is intended to provide a basis for the negotiation
of a comprehensive development agreement (“Agreement”) and
should not be construed as all-inclusive. Further, this Term Sheet
represents the intentions of the parties as of the date it is
executed. Poseidon recognizes that the Agreement is subject to
public review and approval by the Carlsbad City Council and the
California Coastal Commission (the “Coastal Commission”).
Poseidon recognizes that the Agreement is subject to the
California Environmental Quality Act.
The Agreement vests or “fieezes in place” the General Plan,
zoning, and PDP if they are approved concurrently for the
Poseidon site. Any future pennit or approval shall be governed
solely by laws, ordinances and regulations of the City in effect at
the time the Agreement is adopted.
The term shall be 40 years from the date the Agreement is
effective, which is when it is approved by the Coastal
Commission, or the ordinance adopting the Agreement becomes
effective, whichever is the later event.
The Agreement siaE rEordefiiwiE~6eXaTe~-
interest, and its obligations shall bind any successors in interest
who assume, use or occupy the Poseidon leasehold. Per
Government Code Section 65868.5, the “burdens of the
agreement shall be binding upon, and the benefits of the
Payment of Taxes and Fee
in Lieu of Taxes
Exemption from Any
Future Special Water
Production Tax or
Franchise Fee
Modification or
Termination Per Code,
Provisions for Mandated
Annual Review
Approval by Coastal
Commission
Assignment
agreement shall inure to, all successors in interest to the parties to
the agreement.”
Poseidon and successon in interest shall pay a fee in lieu of taxes
to the City equal to the property taxes that the City, the District
and the RDA would receive from the construction and operation
of a desalination facility on the Poseidon leasehold, such fee to be
waived so long as the leaseholder pays property taxes due under
state law for the use and occupancy of the leasehold, and does not
claim a partial or full exemption fiorn payment for such tax.
Neither Poseidon nor its successors in interest shall contest the
payment of (i) any property taxes validly imposed under
applicable law or (ii) the fee in lieu of taxes described above.
The City agrees that for the term of the Agreement, so long as the
City is paid the taxes, or fee in lieu of taxes described in the
preceding section, it will not levy in a discriminatory manner
against Poseidon any tax or fee. For example, it will not attempt
to collect from Poseidon a franchise fee, tax, or other monetary
charge levied only on businesses which produce or sell water, and
if such fee, tax or charge is adopted by the City, Poseidon and its
successors shall be exempt.
Per Government Code Section 65865.1, the City may terminate or
modify the Agreement if it finds on the basis of substantial
evidence that Poseidon or its successor in interest has not
complied in good faith with its terms and conditions. Provisions
for conduct of annual review required by Government Code
Section 65865.1.
Per Government Code Section 65869, because the Project is
located in an area which does not yet have an approved Local
Coastal Program, the Coastal Commission must approve the
Agreement. If the Environmental Impact Report is certified, the
parties expect to apply for the approval of the Coastal
Commission as soon as is practicable thereafter.
The rights and obligations of the Agreement, upon written notice
to the City, may be assigned and delegated by Poseidon in its
discretion, in connection with a permitted assignment of the
Water Purchase Agreement. If any entity acquires the leasehold
rights and duties shall be assigned and delegated to the new
acquiring entity and Poseidon shall have no further liability under
the Agreement. Poseidon shall, at the request of the City, use
reasonable efforts to have the City named as a party in any
--- - by ccmderm~dRuel~-sale,tkis~a------ __
2
proceeding with respect to such a condemnation or involuntary
sale. To the extent that Poseidon receives any condemnation
award attributable to the right of the City to receive a payment in
lieu of taxes under this Agreement, Poseidon shall pay the amount
of such award to the City.
Financing of Public
Improvements, Pipes and
Rights of Way
The City shall have no obligation to use public financing, such as
an assessment district or Mello Roos district, for financing of
public improvements, such as roads, pipes, etc. The City, the
District and the RDA shall provide, and shall cause any
governmental agency under their control to provide any required
public rights of way for the facilities to deliver Product Water to
the District from the Project without charge.
Environmental Compliance Poseidon shall pay all costs associated with environmental review
and regulatory agency permitting. The City and Poseidon
recognize that time is of the essence and will take all reasonable
steps to complete environmental review and enter into the
Agreement in a timely manner.
Unable to Reach
Agreement
Signatures
In the event that the parties are unable to establish terms and
adopt the ordinance approving the Agreement within 12 months,
this Term Sheet shall expire unless it is extended by mutual
written consent.
The City and Poseidon represent that this Term Sheet is an
expression of current intent to negotiate, draft, establish terms of
and execute the Agrement or agreements to implement the
principals established in this Term Sheet. This Term Sheet shall
not be construed as a contract. Each party shall bear its own costs
incurred in implementing this Term Sheet.
3
DSMDB. 1760968.12A
EXHIBIT “C’
WATER QUALITY TERMS AND PROVISIONS
If upon completion of its environmental review the Lead Agency determines that
desalinated water should be supplied to the District directly from the Desalination
Project, then the following terms, provisions and specifications applicable to water
quality issues shall apply.
1. System Test. Within one hundred and eighty (1 80) days after the date
(the “Determination Date”) the Lead Agency determines that desalinated water should be
supplied to the District Directly from the Desalination Project, the Parties shall complete
the development of a mutually acceptable test (the “System Test”) of the effect of
desalinated water on the components of the District’s water distribution system (the
“Distribution System”). The System Test shall include circulating desalinated water,
meeting the Water Quality Standards and the water from the District’s current imported
water supply, in parallel, through two identical systems of pipes, valves and other
components provided by the District which are representative of those contained in the
Distribution System (the “System Test Components”) for a time period sufficient (as
mutually agreed by the Parties, but not to exceed six (6) months except as provided
herein) to determine the relative effect of the desalinated water on the System Test
Components. Prior to the end of the one hundred and eighty (1 80) day period to
complete the development of the System Test, the Corrosion Advisory Panel (as defined
in Section 4 of this Exhibit “C”) shall meet with both parties in Carlsbad, become
familiar with the project and review and comment, in writing, on the proposed design and
proposed length of the System Test. Following the conduct of the System Test, the
results of the System Test shall be transmitted to the Corrosion Advisory Panel and the
Corrosion Advisory Panel shall provide written comments on the interpretation of the
results to both parties. In the event that the System Test results show that the desalinated
water has an adverse effect on the integrity of any System Test Component, which effect
would not also be caused by water from the District’s current imported water supply, the
Water Authority shall take all commercially reasonable actions to change the proposed
operation of the Regional Desalination Project to remove such adverse effect. The
System Test shall be re-performed until the results thereof do not show that the
desalinated water has such an adverse effect on the integrity of any System Test
Component. In the event that the members of the Corrosion Advisory Panel do not agree
as to whether the results of the System Test show such an adverse affect on any System
Test Component or whether the duration of the System Test is adequate to evaluate such
an adverse effect, then the System Test shall be extended by a time period to be mutually
agreed by the parties but not to exceed an additional six (6) months. All costs of
performing (and, if necessary, re-performing) the System Test shall be borne by the
Water Authority; provided, however that the District shall bear the cost of providing
System Test Components, imported water and the collection, treatment, and disposal of
such imported water in accordance with any law, statute, ordinance, rule, code, standard,
regulation, requirement, judgment, consent decree, consent order, consent agreement,
Page 1 of 5 r3
permit action, determination or order applicable to any such activities (collectively
“Applicable Laws”).
2 Consumer Plumbing: Test. Within one hundred and eighty (1 SO) days
after the Determination Date, the parties shall complete the development of a mutually-
acceptable test (the “Consumer Plumbing Test”) of the effect of desalinated water on the
components of consumer plumbing used in the District’s service area, particularly on the
leaching of lead and/or copper from these components. The Consumer Plumbing Test
shall include circulating desalinated water meeting the Water Quality Standards and the
water from the District’s current imported water supply, in parallel, through two identical
systems of consumer plumbing components (the “Consumer Test Components”) for a
time period sufficient (as mutually agreed by the parties, but not to exceed six (6)
months, except as provided herein) to determine the relative effect of the desalinated
water on the Test Components. The pipe loop test described in AWWARF, 1991, Lead
Control Strategies #406, American Water Works Research Foundation, Denver, CO shall
be used as a preliminary model of the Consumer Plumbing Test. Prior to the end of the
one hundred and eighty (1 80) day period to complete the development of the Consumer
Plumbing Test, the Corrosion Advisory Panel shall meet with both parties in Carlsbad,
become familiar with the project to review and comment in writing on the proposed
design and proposed length of the Consumer Plumbing Test. Following the conduct of
the Consumer Plumbing Test, the results of the Consumer Plumbing Test shall be
transmitted to the Corrosion Advisory Panel and the Corrosion Advisory Panel shall
provide written comments on the interpretation of the results to both parties. In the event
that the Consumer Plumbing Test results show that the desalinated water has an adverse
effect on the integrity of any Consumer Test Component or on the leaching of lead andor
copper from said Consumer Test Component, which effect would not also be caused by
water from the District’s current imported water supply, the Water Authority shall take
all commercially reasonable actions to implement changes to the proposed operation of
the Regional Desalination Project to remove any such adverse impacts. The Consumer
Plumbing Test shall be re-performed until the results thereof do not show that the
desalinated water has such an adverse effect on the integrity of any Consumer Test
Component or the leaching of lead and/or copper from any Consumer Test Component.
In the event that the members of the Corrosion Advisory Panel do not agree as to whether
the results of the Consumer Plumbing Test show an adverse effect on the integrity of any
Consumer Test Component or on the leaching of lead and/or copper from any Consumer
Test Component or whether the duration of the Consumer Plumbing Test is adequate to
evaluate such an adverse effect, then the Consumer Plumbing Test shall be extended by a
time period to be mutually agreed by the parties, but not to exceed six (6) months. All
costs of performing (and, if necessary, re-performing) the Consumer Plumbing Test shall
be borne by the Water Authority; provided, however that the cost of providing Consumer
Test Components, imported water and the collection, treatment, and disposal of such
imported water in accordance with Applicable Laws shall be borne by the District.
3 System Monitorine Plan. Within twelve (12) months after the
Determination Date, the parties shall commence the development of a mutually agreeable
method for monitoring the effect of desalinated water on the integrity of the Distribution
Page 2 of 5
System (the “System Monitoring Plan”). Before the System Monitoring Plan is final, the
Corrosion Advisory Panel shall have thirty (30) days to review the final draft System
Monitoring Plan and provide written comments. The parties shall complete the
development of the System Monitoring Plan in sufficient time to allow at least one year
of data collection prior to the Water Authority’s commencement of desalinated water
sales on a continuous basis as contemplated by the Delivery Regime (“Commercial
Operation”), but in no event later than twelve (12) months prior to the anticipated date for
commencement of construction of the Desalination Project. If the District reasonably
believes that the desalinated water may have an adverse effect on the integrity of all or a
material portion of the Distribution System, which effect would not also be caused by the
District’s likely alternative water supply, the parties shall meet to discuss such potential
adverse effects. The Water Authority shall take all commercially reasonable actions to
implement changes to the operation of the Regional Desalination Project to remove such
an adverse effect of desalinated water on the integrity of all or a material portion of the
Distribution System. The cost of the System Monitoring Plan in excess of the cost which
would be reasonably incurred by the District to monitor the Distribution System in the
absence of the Desalination Project shall be equally shared by the parties up to the first
anniversary of the date (the “Commercial Operation Date”) the Regional Desalination
Project is ready to commence Commercial Operation. Thereafter, any additional system
monitoring cost shall be borne by the District.
4 Corrosion Advisorv Panel. Within ninety (90) days der the
Determination Date, the parties shall retain a review panel (the “Corrosion Advisory
Panel”), composed of two nationally recognized experts with experience in the design
and conduct of tests on the corrosiveness of water to system and consumer plumbing
components. Each party shall have the right to appoint one member of the Corrosion
Advisory Panel. The Corrosion Advisory Panel shall be retained to review the design
and length of the System Test and the Consumer Plumbing Test, the interpretation of the
results of said tests and the design of the System Monitoring Plan, as more specifically
provided in Section 1 and 2 of this Exhibit “C.” The Corrosion Advisory Panel shall
meet one time in Carlsbad to become familiar with the project, to review and comment,
in writing, on the design and the proposed length of the said tests before the design and
length of said tests are finalized. Following the conduct of the said tests, the results of
said tests shall be transmitted to the Corrosion Advisory Panel and the Corrosion
Advisory Panel shall provide written review comments to the parties. If the members of
the Corrosion Advisory Panel do not agree with each other on any advice or
recommendation on any matter, each member shall report his or her advice or
recommendation on said matter independently. Having reviewed and considered the
advice and recommendations of the Corrosion Advisory Panel, the parties shall make
their own independent judgments about the design and length of the System Test and the
Consumer Plumbing Test, and the design of the System Monitoring Plan and about the
interpretation of the results from the System Test and the Consumer Plumbing Test.
Page 3 of 5
5. Water Qualitv.
5.1 Water Qualitv Issues. With respect to desalinated water
produced by the Desalination Project, the Water Authority and the District agree to work
cooperatively to conduct, prior to determination of the Delivery Regime, mutually
acceptable technical studies pertaining to quality, blending, distribution and consumer
acceptance (including without limitation customer issues, such as color, cloudiness, taste
and odor) of desalinated water, the impact of desalinated water Quality on customer uses
of water, the impact of desalinated water on the integrity of existing pipelines, and the
impact of additional discharge of municipal and industrial waste from the Regional
Desalination Project facilities (collectively “Water Quality Issues”). These studies shall
include advice from a nationally recognized expert on the impact of boron in irrigation
water on ornamental plants (the “Boron Expert”). The Boron Expert shall be mutually
acceptable to both parties. Except as provided in Sections 1,2 and 3 of this Exhibit “C,”
the Water Authority, at its cost and expense, shall be responsible for such technical
studies related to the Water Quality Issues. The Delivery Regime and any revisions to
the Quality Standards for desalinated water shall take into account the results of the
technical studies described above. Without limiting the generality of the foregoing, the
Water Authority and the District agree to meet prior to the Commercial Operation Date,
and, upon request of the District, during the Term on a periodic basis with the District’s
major water customers, such as breweries, nurseries, landscape irrigators, agricultural
growers, biotechnology companies and cleaners, to discuss and work to resolve issues
those customers may have with receiving desalinated water. The Water Authority shall
cooperate with the District in resolving Water Quality Issues. Notwithstanding the
foregoing, any change in the Delivery Regime or Quality Standards developed pursuant
to this Agreement shall be mutually agreed by the parties.
5.2 Qualitv Standards: Compliance with Law, Pressure
Parameters and Water Qualitv Standards. All desalinated water produced by the
Regional Desalination Project and delivered to the District must meet all of the following
standards (collectively the “Quality Standards”): (a) all drinking water quality standards
under Applicable Laws (whether now in force or hereafter adopted) and action levels
now in force or hereafter adopted by the California Department of Health Services, (b)
the water quality specifications set forth in Schedule 1 attached to this Exhibit “C,” and
(c) any mutually-agreed change to the Quality Standards with respect to the Water
Quality issues described in Section 5.1 above or otherwise identified in the technical
studies performed with respect to such Water Quality Issues. Attached as Schedule 1 to
this Exhibit “C” are the Quality Standards with respect to the Regional Desalination
Project as of the date the parties have executed this Agreement. The Quality Standards in
Schedule 1 include permitted variations for each water quality parameter specified. If the
desalinated water produced by the Desalination Project at any time fails to meet all
Quality Standards, then the Water Authority immediately shall notify the District, and the
District and the Water Authority shall meet promptly thereafter to determine what
corrective measures, if any, need to be taken. The parties acknowledge that corrective
measures may include, without limitation, segregating desalinated water that fails to meet
all Quality Standards. The Water Authority shall be responsible for any and all state and
Page 4 of 5 86
federal fines resulting from desalinated water that does not meet Applicable Laws for
drinking water quality.
5.3 Finalization of Water Quality Specification for Boron. The
parties shall use commercially reasonable efforts to determine, within one hundred and
eighty (1 80) days after the Determination Date, mutually-acceptable concentration limits
for Boron to be included in Schedule 1.
5.4 District’s Non-Acceptance. The District shall not be obligated to
accept or pay for desalinated water of quality that does not meet the Quality Standards.
5.5 Compliance with Regulations on Water Quality. As a purveyor
of drinking water, the District is required to comply with regulations that address water
quality in the Distribution System and at the consumer’s tap (“Consumer Quality
Standards”). If, following the introduction of desalinated water, the District is in
violation of the Consumer Quality Standards, then the District immediately shall notify
the Water Authority, and the District and the Water Authority shall meet promptly
thereafter to determine what corrective measures, if any, need to be taken. If a
Desalinated Water Causation Event (as defined below) occurs, then the District, upon
written notice to the Water Authority, may suspend deliveries of desalinated water, and
the District shall not be obligated to pay for desalinated water that causes the District to
be in violation of the Consumer Quality Standards; provided, however that prior to such
suspension the District and the Water Authority shall use all commercially reasonable
efforts to implement alternative corrective measures to address a violation of the
Consumer Quality Standards. A “Desalinated Water Causation Event” shall mean the
occurrence of the following three (3) conditions: (i) desalinated water causes the District
be in violation of the Consumer Quality Standards, (ii) such violation would not be
caused by the District’s likely alternative water supply and (iii) such violation is not also
caused in whole or in part by any action or omission of the District. The Water Authority
shall be responsible for any and all state and federal fines resulting from a Desalinated
Water Causation Event. With respect to the issue of causation of a District violation of
the Consumer Quality Standards, nothing set forth in this Section 5.5 shall be deemed or
construed to shift the burden of proof to the Water Authority, or as a waiver by the Water
Authority of any claims or defenses.
Page 5 of 5
Schedule 1 to Exhibit "C"
Quality Standards
Sampling
2 Sample Method
Analytical
Method' Sample
period
Concentration Limits
Units
Extreme4 Tendency3
Quality
Parameter"
Total Dissolved
Solids 2540 C Weekly grab 400 3 50 one year
180 210 Chloride 41 10 B Weekly grab one year
Weekly grab 0.5 0.8 Bromide
Boron
one year 4110 B
3120 B Weekly grab tbd5 15 one year mgk
NTU one
month Continuous6 Turbidity
SDS-THM9
2130 B
5710 C
0.3 0.5
Monthly Grab:
100% Desal
> 70% of
MCL7
< 100% of
MCL7 one year
Monthly Grab:
50% desal &
50% Aqued
Monthly Grab:
100% Desal
> 70% of
MCL7
-= 100% of
MCL' SDS-THM~. 5710 D one year
one year SDS-HAA9 5710 D > 70% of
MCL7
< 100% of
MCL7
Monthly Grab:
50% desal &
50% Aqued
daily grab
> 70% of
MCL7
< 100% of
MCL7 SDS-HAA~, 5710 D ma
"F
one year
one
month Temperature 85 OF 2550
Page 1 of 2
1. All methods taken from Standard Methods On Line, published by APHA, AWWA,
and WEF.
2. Sample period - concentration limits are calculated for this period
3. Central Tendency - can be exceeded in no more than 50% of samples taken
4. Extreme - can be exceeded in no more than 10% of samples taken
5. Permanent values to be determined pursuant to Section 8.3.
6. Continuous analysis, values at 15 minute intervals used in all calculations
7. Use the MCL that applies in the District’s Distribution system
8. Does not apply if the District is using exclusively Desalinated Water
9. After the first year of testing, frequency of testing shall be per Applicable Law.
10. All samples to assess compliance with Applicable Law and Schedule 8.2
(except for samples for SDS-THM and SDS-HAA analyses) are to be collected
at mutually agreed upon location at the Project site. All SDS-TMM and
SDS-HAA samples are to be collected at mutually agreed upon locations
in the District’s distribution system, as required by Applicable
Law.
Examples of interpreting the central tendency and the extreme:
a. TDS - Central tendency requirement: no more than 26 samples among any 52
contiguous weekly samples may exceed 350 ma.
b TDS - Extreme: no more than 5 samples among any 52 contiguous weekly samples
may exceed 400 mgL
c. Turbidity - central tendency requirement: no more than 1440 measurements among
2880 contiguous measurements recorded at 15 minute intervals may exceed 0.3 ntu.
d. Turbidity - extreme requirement: no more than 288 measurements among 2880
contiguous measurements recorded at 15 minute intervals may exceed 0.5 ntu.
e. SDS-THM - Central tendency requirement: no more than 6 samples among any 12
contiguous samples may exceed the MCL for THMs which is applicable to the water in
the District’s distribution system at the time the samples are taken.
Page 2 of 2
EXHIBIT “D”
RDA CONTRIBUTION
FOR EXAMPLE PURPOSES ONLY
Tax Payment
Made by Year Private Owner
1,000,000
1,100,000
1,500,000
1,750,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
2,000,000
Discount
Rate
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
5.20%
Discounted
Value
$ 1,000,000
$ 1,045,627
$ 1,355,376
$ 1,503,110
$ 1,632,928
$ 1,552,213
$ 1,475,488
$ 1,402,555
$ 1,333,227
$ 1,267,326
$ 1,204,682
$ 1,145,135
Net Present Value of
Remaining Payments Due to the RDA from
SDCWA
$ 15,300,000
$, 14,300,000
$ 13,254,373
$ 11,898,997
$ 10,395,886
$ 8,762,958
$ 7,210,746
$ 5,735,258
$ 4,332,703
$ 2,999,476
$ 1,732,150
$ 527,468
$ 0
The Discount period begins with the first tax payment date. For example, if the first tax
payment is made to the RDA on December 28th 2008, all future payments made to the
RDA will be discounted from that date to the actual date received by the RDA using a
5.2% annual discount rate.
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EXHIBIT “E”
RDA Proiects Payment
Communitv Enhancements and Needs
1. Parking improvements in vicinity of power plant
2. Frontage improvements -- Carlsbad Blvd
3. Signalization of pedestrian crossing
4. Cannon Park expansion
5. Bluff top improvements in vicinity of power plant
6. Beach restroom
7. Coastal Rail Trail -- Cannon to Tamarack
8. North Agua Hedionda Lagoon trail improvements
9. Power Plant screening
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