HomeMy WebLinkAbout2009-09-15; City Council; 697; MWD agreement no 70025 for desalination projectNST^n$&))
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DEPT.
CARLSBAD MUNICIPAL WATER DISTRICT - AGENDA BILL
697
9/15/09
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AUTHORIZE THE EXECUTIVE MANAGER TO
EXECUTE THE METROPOLITAN WATER DISTRICT
AGREEMENT NO. 70025 - CARLSBAD SEAWATER
DESALINATION PROJECT
1-
DEPT. HEAD \fffl
CITY ATTY. CJSIR
CITY MGR. (XA-^
RECOMMENDED ACTION:
Adopt Resolution No. 1375 authorizing the Executive Manager to execute the Metropolitan
Water District Agreement No. 70025 for the Carlsbad Seawater Desalination Project, subject to review
by General Counsel.
ITEM EXPLANATION:
A key element of the Carlsbad Seawater Desalination Project's implementation is obtaining the
financial incentives from the Metropolitan Water District (MWD). Staff has been working with the other
water agencies that comprise the Desal Partners Group, Poseidon Resources (Poseidon), and the
San Diego County Water Authority (SDCWA) to secure the MWD financial incentives. Following the
review of previous draft agreements and discussions between the SDCWA and MWD, CMWD has
received from MWD a revised draft of the Seawater Desalination Program (SDP) agreement for the
Carlsbad Desalination Project. MWD has addressed many of the comments provided on prior
versions of the agreement and clarified the roles and responsibilities of the parties. The MWD
agreement is the standard agreement used, and has been only slightly modified based on the review
and recommendations of the SDCWA and the Desal Partners.
MWD staff will be meeting with the desalination project contracting agencies to go over the final draft
agreement and the obligations of the parties in mid September. The SDP agreement requires that all
Water Purchase Agreements (WPA) be modified to be consistent with the terms and conditions of the
SDP agreement. These modifications pertain to obligations of Poseidon to maintain records, comply
with audits, and indemnify MWD. An amendment to the WPA will be considered at a future meeting.
MWD has targeted an October 2009 approval of the agreement; this requires all other agencies to
approve it prior to the MWD October Board meeting. Timely approval of the agreement by all parties
to secure the financial incentives is an important component of the financing package being
developed by Poseidon. Staff recommends that the Board of Directors authorize the Executive
Manager to execute the agreement, Exhibit 2, contingent upon review by General Counsel and
concurrence among all parties of the final terms and format of the agreement.
DEPARTMENT CONTACT: Mark Stone, 760-438-2722 mark.stone@carlsbadca.gov
FOR CITY CLERKS USE ONLY
BOARD ACTION: APPROVED
DENIED
CONTINUED
WITHDRAWN
AMENDED
P
D
D
D
CONTINUED TO DATE SPECIFIC D
CONTINUED TO DATE UNKNOWN D
RETURNED TO STAFF D
OTHER-SEE MINUTES D
Page 2
The principle terms and conditions of the SDP are as follows:
1. Parties to the agreement include: MWD, SDCWA, Carlsbad Municipal Water District, City of
Oceanside, Olivenhain Municipal Water District, Rainbow Municipal Water District, Rincon Del
Diablo Municipal Water District, Santa Fe Irrigation District, Sweetwater Authority, Vallecitos Water
District, and Valley Center Municipal Water District - collectively referred to as the Local Retail
Agencies (LRA's).
2. The estimated SDP financial contribution in dollars per acre foot shall not exceed $250/AF.
3. The term of agreement is 25 years after project has begun operations, or June 30, 2040,
whichever is sooner.
4. A Rate Structure Integrity clause (Section 11) that protects MWD from actions by the SDCWA and
LRA's relative to the MWD Existing Rate Structure that provides revenues for the SDP and other
programs.
ENVIRONMENTAL IMPACT:
Permits and the environmental impact report (EIR 03-05) for the Carlsbad Seawater Desalination
Project were approved and certified by the City in 2006. EIR 03-05 analyzed the delivery of
desalinated water to CMWD and water districts outside Carlsbad. This delivery would be
accomplished by a proposed extensive pipeline network analyzed in EIR 03-05 and additional new
pipelines now undergoing additional environmental review. The requested action was anticipated by
and is consistent with EIR 03-05.
FISCAL IMPACT:
The financial incentives offered through the SDP will benefit the District and the San Diego region.
The maximum annual financial incentive to the District is approximately $4,000,000 to $6,250,000
(16,000 to 25,000 AFY x $250/AF). Based on actual financial need over the 25-year term of the
agreement, it is projected that the maximum total incentives received by the District could amount to
$100 million to $156.25 million ($4,000,000 to $6,250,000/yr x 25 years). The actual amounts
received by the District will likely be less than the maximum amounts listed above. This is due to the
fact that the MWD incentive is a maximum of $250/AF and will decrease as the cost of imported water
approaches that of desalinated water. From a regional perspective, the total maximum financial
incentives amount to $14 million annually and up to $350 million over the term of the agreement.
These contributions from MWD will be passed through by each LRA to Poseidon to offset the capital
and operating costs of the project.
EXHIBITS:
1. Resolution No. 1375 authorizing the Executive Manager to execute the Metropolitan
Water District Agreement No. 70025 for the Carlsbad Seawater Desalination Project, subject to
review by General Counsel.
2. Metropolitan Water District Agreement No. 70025 - Carlsbad Seawater Desalination Project
(Seawater Desalination Program Agreement).
EXHIBIT 1
1
RESOLUTION NO. 1375
2
A RESOLUTION OF THE BOARD OF DIRECTORS OF
3 CARLSBAD MUNICIPAL WATER DISTRICT (CMWD),
AUTHORIZING THE EXECUTIVE MANAGER TO EXECUTE THE
4 METROPOLITAN WATER DISTRICT AGREEMENT NO. 70025 -
CARLSBAD SEAWATER DESALINATION PROJECT
5
6 WHEREAS, on September 28, 2004, by Resolution No. 1226, the Board approved a
7 Water Purchase Agreement (WPA) between the Carlsbad Municipal Water District (CMWD) and
8 Poseidon for the purchase of up to 25 MGD of desalinated water from the proposed seawater
9 desalination facility; and
10 WHEREAS, Section 3.1 of the WPA stipulates that the Parties shall use commercially
11 reasonable efforts to obtain a subsidy from the Metropolitan Water District of Southern California
12 under its Seawater Desalination Program in an amount not less than Two Hundred Fifty Dollars
13 ($250.00) per acre foot for the purchase of product water under the agreement; and
14 WHEREAS, CMWD staff has been working with the other water agencies that comprise
'* the Desal Partners Group, Poseidon Resources (Poseidon), and the San Diego County Water
1R Authority (SDCWA) to secure the MWD financial incentives; and
17 WHEREAS, MWD staff has provided each of the Desal Partners with a draft of their
1ft standard form which has been modified slightly as a result of review by SDCWA and the Desal
19 Partners creating a Seawater Desalination Program (SDP) agreement for the Carlsbad
on Desalination Project which has addressed many of the comments provided on prior versions of
21 the agreement and clarified the roles and responsibilities of the parties; and
22 WHEREAS, MWD has targeted an October 2009 approval of the agreement that requires
23 all other agencies to approve it prior to the MWD October Board meeting.
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1 NOW, THEREFORE, BE IT RESOLVED by the Carlsbad Municipal Water District Board
2 of the City of Carlsbad, California, as follows:
2 1. That the above recitations are true and correct.
2. That the Carlsbad Municipal Water District Board of Directors authorizes the
Executive Manager to execute the Metropolitan Water District Agreement No. 70025 for the
0
p Carlsbad Seawater Desalination Project, subject to the inclusion of changes approved by theb
Carlsbad Municipal Water District Board of Directors, and review and approval by General
Q Counsel,o
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PASSED, APPROVED AND ADOPTED at a Special Meeting of the Board of
Directors of the Carlsbad Municipal Water District of the City of Carlsbad on the 15th
day of September, 2009, by the following vote to wit:
AYES: Board Members Lewis, Kulchin, Hall, Packard, Blackburn
NOES: None
ABSENT: None
CLAUDE A LEWIS, President
ATTEST:
LORRAINE M.
/SEAL)
OD, Secretary O
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EXHIBIT 2
AGREEMENT NO. 70025
CARLSBAD SEA WATER DESALINATION PROJECT
SEAWATER DESALINATION PROGRAM AGREEMENT AMONG
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA,
THE SAN DIEGO COUNTY WATER AUTHORITY,
CARLSBAD MUNICIPAL WATER DISTRICT,
CITY OF OCEANSIDE,
OLIVENHAIN MUNICIPAL WATER DISTRICT,
RAINBOW MUNICIPAL WATER DISTRICT,
RINCON DEL DIABLO MUNICIPAL WATER DISTRICT,
SANTA FE IRRIGATION DISTRICT,
SWEETWATER AUTHORITY,
VALLECITOS WATER DISTRICT, AND
VALLEY CENTER MUNICIPAL WATER DISTRICT,
DRAFT June 4, 2009
SDCWA -1- DRAFT SDP Agreement No. 70025
AGREEMENT NO. 70025
CARLSBAD SEAWATER DESALINATION PROJECT
SEAWATER DESALINATION PROGRAM AGREEMENT AMONG
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA,
THE SAN DIEGO COUNTY WATER AUTHORITY,
CARLSBAD MUNICIPAL WATER DISTRICT, CITY OF OCEANSIDE,
OLIVENHAIN MUNICIPAL WATER DISTRICT, RAINBOW MUNICIPAL WATER DISTRICT,
RINCON DEL DIABLO MUNICIPAL WATER DISTRICT, SANTA FE IRRIGATION DISTRICT,
SWEETWATER AUTHORITY, VALLECITOS WATER DISTRICT, AND
VALLEY CENTER MUNICIPAL WATER DISTRICT,
TABLE OF CONTENTS
Section Page
RECITALS 3
Section 1: Definitions 6
Section 2: Conditions Precedent to Metropolitan Contributions 8
Section 4: Covenants 9
Section 5: Ownership and Responsibilities 10
Section 6: Invoicing Process 11
Section?: Reconciliation Process 12
Section 8: Record Keeping and Audit 13
Section 9: Term, Amendments, and Termination 15
Section 10: Intellectual Property 16
Section 11: Rate Structure Integrity 16
Section 12: Use of Metropolitan's Facilities 19
Section 13: Metropolitan's Imported Water Entitlements 19
Section 14: Hold Harmless and Liability 19
Section 15: Notice 20
Section 16: Successors and Assigns 21
Section 17: Integration 21
Section 18: Severability 21
Section 20: Governing Law 21
Exhibits
Exhibit A (Project Description)
Exhibit B (Annualized Capital Component)
Exhibit C (Operation and Maintenance Component)
Exhibit D (Annualized Replacement Component)
Exhibit E (Deferred Costs)
Exhibit F (Performance Provisions)
Exhibit G (Required terms of LRA/Poseidon Agreements)
SDCWA -2- DRAFT SDP Agreement No. 70025
AGREEMENT NO. 70025
CARLSBAD SEAWATER DESALINATION PROJECT
SEAWATER DESALINATION PROGRAM AGREEMENT AMONG
THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA,
THE SAN DIEGO COUNTY WATER AUTHORITY,
CARLSBAD MUNICIPAL WATER DISTRICT, CITY OF OCEANSIDE,
OLIVENHAIN MUNICIPAL WATER DISTRICT, RAINBOW MUNICIPAL WATER DISTRICT,
RINCON DEL DIABLO MUNICIPAL WATER DISTRICT, SANTA FE IRRIGATION DISTRICT,
SWEETWATER AUTHORITY, VALLECITOS WATER DISTRICT, AND
VALLEY CENTER MUNICIPAL WATER DISTRICT,
THIS AGREEMENT is made and entered into as of among the Metropolitan Water District
of Southern California, the San Diego County Water Authority, Carlsbad Municipal Water District, City
of Oceanside, Olivenhain Municipal Water District, Rainbow Municipal Water District, Rincon del
Diablo Municipal Water District, Santa Fe Irrigation District, Sweetwater Authority, Vallecitos Water
District, and Valley Center Municipal Water District, collectively referred to as "Parties" and
individually as "Party."
RECITALS
A. Metropolitan is a public agency of the State of California incorporated under the Metropolitan
Water District Act, Stats. 1969, ch. 209, as amended, [§§ 109.1 et seq. of the Appendix to the
West's California Water Code] engaged in transporting, storing and distributing water in the
counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura, within the
State of California.
B. SDCWA is a county water authority incorporated under the California County Water Authority
Act, Stats. 1943, c.545 as amended, [§§ 45-1 et seq. of the Appendix to the West's California
Water Code], for the purpose of providing its member agencies in San Diego County with a safe,
reliable, and sufficient supply of imported water.
C. SDCWA is a member public agency of Metropolitan.
D. Carlsbad Municipal Water District (Carlsbad) is a municipal water district incorporated under the
Municipal Water District Law of 1911 [California Water Code §§ 71010 et seq.] and a member
agency of SDCWA.
E. City of Oceanside is a California general law city and a member agency of SDCWA.
SDCWA -3- DRAFT SDP Agreement No. 70025
F. Olivenhain Municipal Water District is a municipal water district incorporated under the
Municipal Water District Law of 1911 [California Water Code §§71010 et seq.] and a member
agency of SDCWA.
G. Rainbow Municipal Water District is a municipal water district incorporated under the Municipal
Water District Law of 1911 [California Water Code §§71010 et seq.] and a member agency of
SDCWA.
H. Rincon del Diablo Municipal Water District is a municipal water district incorporated under the
Municipal Water District Law of 1911 [California Water Code §§71010 et seq.] and a member
agency of SDCWA.
I. Santa Fe Irrigation District is an irrigation district incorporated under the Irrigation District Law
[California Water Code §§ 20500 et seq.] and a member agency of SDCWA.
J. Sweetwater Authority is a joint powers agency formed by the City of National City, a California
general law city and member agency of SDCWA, and South Bay Irrigation District is an
irrigation district incorporated under the Irrigation District Law [California Water Code §§
20500 et seq.] and a member agency of SDCWA.
K. Vallecitos Water District is a county water district incorporated under the County Water District
Law [California Water Code §§ 30000 et seq.] and a member agency of SDCWA.
L. Valley Center Municipal Water District is a municipal water district incorporated under the
Municipal Water District Law of 1911 [California Water Code §§ 71010 et seq.] and a member
agency of SDCWA.
M. Unless this Agreement specifies otherwise, it shall refer to Carlsbad Municipal Water District,
City of Oceanside, Olivenhain Municipal Water District, Rainbow Municipal Water District,
Rincon del Diablo Municipal Water District, Santa Fe Irrigation District, Sweetwater Authority,
Vallecitos Water District, and Valley Center Municipal Water District collectively as "Local
Retail Agencies" or "LRAs".
SDCWA -4- DRAFT SDP Agreement No. 70025
N. Metropolitan's mission is to provide its service area with adequate and reliable water to meet
present and future needs in an environmentally and economically responsible manner.
O. As part of its Integrated Resources Plan, Metropolitan established the Seawater Desalination
Program to provide financial incentives for seawater desalination projects that reduce demand
for imported water supplies from Metropolitan through the State Water Project and Colorado
River Aqueduct.
P. Poseidon Resources (Channelside) LLC, a Delaware limited liability company, is planning to
construct capital facilities collectively known as the Carlsbad Seawater Desalination Project, to
treat seawater to potable standards and to sell that water to LRAs for beneficial use within
SDCWA's and Metropolitan's service area. Each participating LRA has entered into a bilateral
agreement with Poseidon to acquire desalinated water produced by the Project.
Q. Metropolitan, in accordance with its SDP, desires to assist in the development of the Project in
its service area by providing financial incentives to SDCWA for production of Desalinated
Seawater from the Project.
R. Metropolitan's SDP and the provision of the financial incentive are premised upon and require
verification of actual costs for producing desalinated water.
S. SDCWA and LRAs desire to take part in Metropolitan's SDP in accordance with the provisions
of the SDP and this Agreement.
T. SDCWA desires to support the Project by transferring to LRAs the financial incentives it
receives from Metropolitan under the SDP and this Agreement.
U. The Parties agree that any information obtained from Metropolitan-funded research or Project
implementation under this Agreement shall be shared among all of Metropolitan's member
public agencies.
NOW, THEREFORE, in consideration of the promises and covenants set forth in this SDP Agreement,
the Parties agree as follows:
SDCWA -5- DRAFT SDP Agreement No. 70025
Section 1: Definitions
The following words and terms, unless otherwise expressly defined in their context, shall mean the
following:
1.1 "Agreement" shall mean this agreement.
1.2 "Contract Yield" shall mean the maximum amount of Desalinated Seawater expected to be
produced by the Project pursuant to this Agreement and is established initially at 56,000 acre-
feet per Fiscal Year. This initial Contract Yield is subject to reduction pursuant to the provisions
of Exhibit F.
1.3 "Deferred Cost" shall mean that cost, in dollars per acre-foot, carried forward from the preceding
Fiscal Year as calculated in Exhibit E, incorporated herein by this reference.
1.4 "Desalinated Seawater" shall mean treated seawater produced by the Project that meets all
applicable federal, state and local water quality laws and regulatory requirements for potable
uses, developed for delivery within SDCWA's service area.
1.5 "Eligible Yield" shall mean the amount of Desalinated Seawater delivered to LRA's and
SDCWA's local potable water distribution system from the Project in a Fiscal Year that is
eligible to receive Metropolitan's financial assistance. Eligible Yield shall not exceed Contract
Yield and shall exclude any Desalinated Seawater that Metropolitan reasonably determines will
not augment water supply available to Metropolitan's service area, including Metropolitan's
imported water. Eligible Yield is water produced only through the Project and does not include
other water sources that have been blended with the Desalinated Seawater.
1.6 "Environmental Document" shall mean any final document, review, finding, conclusion,
declaration, or determination required for the Project under applicable state or federal law,
including but not limited to the California Environmental Quality Act (CEQA) and federal
National Environmental Policy Act (NEPA).
1.7 "Estimated SDP Contribution" shall mean the financial contribution in dollars per acre-foot, not
to exceed $250 per acre-foot, that Metropolitan pays SDCWA pursuant to this Agreement for
SDCWA -6- DRAFT SDP Agreement No. 70025
monthly Eligible Yield until the Final SDP Contribution is calculated pursuant to procedures set
forth in Sections 6 and 7.
1.8 "Final SDP Contribution" shall mean the final financial contribution in dollars per acre-foot that
Metropolitan pays SDCWA pursuant to this SDP Agreement for Eligible Yield in a Fiscal Year,
not to exceed $250 per acre-foot. The Final SDP Contribution for the Project is equal to the sum
of the Project Unit Cost and Deferred Cost minus Metropolitan's prevailing full service treated
water rate applicable to all of Metropolitan's member public agencies.
1.9 "Fiscal Year" shall mean Metropolitan's fiscal year, which begins on July 1 and ends on June 30.
1.10 "Local Retail Agency" or "LRA" shall mean a member public agency of SDCWA that is party to
this Agreement.
1.11 "LRA/Poseidon Agreement" shall mean an agreement between an LRA or group of LRAs and
Poseidon for purchase of Project water.
1.12 "Metropolitan" shall mean the Metropolitan Water District of Southern California.
1.13 "Poseidon" shall mean Poseidon Resources (Channelside) LLC, and its successors and assigns as
authorized pursuant to this Agreement.
1.14 "Project" shall mean the "Carlsbad Seawater Desalination Project" under development by
Poseidon and supported by SDCWA and LRAs, consisting of various capital treatment and
distribution facilities capable of producing Eligible Yield, as described in Exhibit A,
incorporated herein by this reference.
1.15 "Project Unit Cost" shall mean the actual cost to produce and distribute an acre-foot of Eligible
Yield by the Project and is comprised of three components: Annualized Capital Component,
Operation and Maintenance Component, and Annualized Replacement Component as specified
in Exhibits B, C, and D, respectively, incorporated herein by this reference.
1.16 "Required Approvals" shall mean any and all authorizations, consents, licenses, Environmental
Documents, permits, or approvals as may be required by any applicable federal, state, or local
law in order to fully construct and operate the Project.
SDCWA -7- DRAFT SDP Agreement No. 70025
VI
1.17 "SDCWA" shall mean the San Diego County Water Authority.
1.18 "Seawater" shall mean water taken directly from the ocean, including estuaries or beach wells.
1.19 "Seawater Desalination Program" or "SDP" shall mean the desalination assistance program as
authorized by Metropolitan's Board of Directors and as implemented by Metropolitan's officers,
employees, and agents. The SDP includes all policy directions for the program in place at the
time this SDP Agreement is entered into, along with any modifications thereto that occur during
the terms of this SDP Agreement.
1.20 "Total Deliveries" shall mean all types of water, including Desalinated Seawater, delivered
through Project facilities in a Fiscal Year. The quantity of Total Deliveries is used to calculate
the Annualized Capital Component, Operation and Maintenance Component, and Annualized
Replacement Component, as specified in Exhibits B, C, and D, respectively.
Section 2: Conditions Precedent to Metropolitan Contributions
Metropolitan's obligation to pay to SDCWA the Estimated or Final SDP Contribution by credit on
SDCWA's monthly billing or otherwise (as set forth in Sections 6 and 7 below) are subject to
satisfaction of the following conditions precedent:
2.1 LRA/Poseidon Agreements - SDCWA shall have provided evidence that each LRA has entered
into an LRA/Poseidon Agreement. Each LRA/Poseidon Agreement must be substantially in
accord with the SDP and all relevant terms of this Agreement. In addition, each LRA/Poseidon
Agreement shall contain the terms set forth in Exhibit G to this Agreement, incorporated herein
by this reference. Metropolitan retains sole discretion to determine whether such agreements
meet these criteria.
2.2 Permits and Approvals - SDCWA shall have provided Metropolitan evidence of all Required
Approvals and delivered such information to Metropolitan. No Required Approvals may impose
any conditions on the Project that Metropolitan in its sole discretion finds will (a) unreasonably
limit the financing, construction, or operation of the Project for the purposes of this Agreement;
(b) reduce SDCWA's or LRAs' available water supplies; or (c) impose any condition upon
Metropolitan or member public agencies of Metropolitan. Any acceptable conditions shall have
SDCWA -8- DRAFT SDP Agreement No. 70025
been satisfied or waived by the entity or person imposing such conditions.
2.3 Environmental Documentation - SDCWA shall have provided Metropolitan evidence of all
Environmental Documents. Further, all time periods for commencing any administrative or legal
action to challenge any such Environmental Documents, or any Required Approvals that are
contingent upon such Environmental Documents, shall have expired with no legal or
administrative actions pending. In the case of NEPA, sixty (60) days shall have expired after
publication of the Record of Decision in the Federal Register with no legal or administrative
actions pending.
2.4 Project Description and Milestones - SDCWA shall have provided Metropolitan a detailed
project description to complement Exhibit A and Project Milestones for implementing the
Project.
2.5 Litigation Notification - SDCWA shall have certified that it has conducted a search with due
diligence and knows of no administrative or legal action, including any arbitration, investigation,
or other proceeding, pending before any court, arbitrator, or governmental authority, nor any
such action threatened, nor any decree, order, or injunction issued by any court, arbitrator, or
governmental authority and remaining in effect, that (a) prevents construction or operation of the
Project; (b) prevents or hinders (or seeks to prevent or hinder) production of Desalinated
Seawater; or (c) challenges the validity of this Agreement or the development or operation of the
Project.
Section 3: Representations and Warranties
3.1 As applicable, each Party represents and warrants that it has legal authority to purchase, receive
delivery of, distribute, or sell desalinated water produced by the Project, and that those
authorities are consistent with this Agreement.
Section 4: Covenants
4.1 Each LRA covenants that throughout the term of this Agreement, its agreement with Poseidon
for acquisition of desalinated water produced by the Project shall remain in effect.
SDCWA -9- DRAFT SDP Agreement No. 70025
4.2 Each LRA agrees that it will enforce the terms of this SDP Agreement regarding calculation of
Project Costs, record-keeping, and auditing rights.
4.3 Carlsbad covenants that it will obtain from Poseidon and provide to SDCWA all Project costs
and associated audits as required under this Agreement, hi the event Carlsbad will not be
available to meet this obligation in the future, SDCWA shall designate one of the other LRAs to
provide this information to Metropolitan
Section 5: Ownership and Responsibilities
5.1 Metropolitan shall have no ownership right, title, security interest, or other interest in the Project.
5.2 The Parties acknowledge that Metropolitan shall have no responsibility for design,
environmental compliance, right-of-way acquisitions, permits, construction, Project costs, or any
modifications thereof of the Proj ect.
5.3 The Parties acknowledge that Metropolitan shall have no responsibility for operation and
maintenance of the Project in accordance with all applicable local, state, and federal laws.
Metropolitan shall have no rights, duties, or responsibilities for operation or maintenance of the
Project.
5.4 Each LRA shall install or cause the installation, operation, and maintenance of metering devices
satisfactory to Metropolitan and SDCWA for the purpose of measuring the quantity of Eligible
Yield and Total Deliveries to such LRA.
5.5 No Party may deliver, transfer, or exchange Project water, or other water in-lieu of Project water,
outside SDCWA's or Metropolitan's service area, unless otherwise approved in writing by
Metropolitan and SDCWA.
5.6 Until the date the Project starts operation, SDCWA shall provide Metropolitan with semi-annual
progress reports in meeting the Project Milestones submitted pursuant to Section 2 on or before
July 1 and December 1 of each Fiscal Year. The progress report shall include but not be limited
to status of environmental documentation, permits, construction, and forecast of Project
production.
SDCWA -10- DRAFT SDP Agreement No. 70025
5.7 All Parties shall assist Metropolitan in efforts to forecast future Project production for the
purposes of projecting the region's water demand and supplies.
5.8 SDCWA shall notify Metropolitan in writing of any changes to the Project that require new
Environmental Documents. Metropolitan shall have the right to review the proposed changes
and associated environmental documentation and determine whether the proposed changes are
consistent with the SDP policy and principles. Metropolitan shall inform the Parties of its
decision to include or exclude proposed changes and associated costs for calculating the Project
Unit Cost under this Agreement.
Section 6: Invoicing Process
6.1 SDCWA shall notify Metropolitan in writing no less than 30 days prior to the start of Project
operation. Before the first invoice submitted under this Agreement, SDCWA, Carlsbad,
Poseidon, and Metropolitan shall meet to coordinate agreement administration requirements and
to determine the Estimated SDP Contribution based on historic cost data and expected Project
activities. After the first year of operation, the Estimated SDP Contribution will be determined
during the annual reconciliation process pursuant to Section 7 of this Agreement.
6.2 After the start of Project operation, each LRA shall certify to SDCWA the amount of Desalinated
Seawater delivered to such LRA by the Project. SDCWA in turn shall invoice Metropolitan
monthly for the Estimated SDP Contribution based upon Eligible Yield delivered during the
previous month to LRAs. Metropolitan shall pay LRAs for invoiced Estimated SDP
Contribution by means of a credit included on the next monthly water service invoice issued to
SDCWA in accordance with Metropolitan's Administrative Code. SDCWA agrees to pass the
full amount of those credits to LRAs.
6.3 Invoices for Estimated SDP Contributions must be received by Metropolitan before 3:00 p.m. on
the third working day after the end of the month to receive credit for any preceding month on the
next monthly water service invoices issued to SDCWA. Metropolitan will not pay for any
invoiced Estimated SDP Contribution that Metropolitan receives more than six months following
the end of any month in which a credit is claimed.
SDCWA -11 - DRAFT SDP Agreement No. 70025
Section?: Reconciliation Process
7.1 After the start of Proj ect operation and by December 31 of each year, SDCWA on behalf of
LRAs shall obtain from LRAs and provide to Metropolitan records of Project costs, Total
Deliveries, and Eligible Yield data for the previous Fiscal Year of operation. SDCWA shall
provide to Metropolitan: a) each LRA's and Poseidon's supporting documentation of the actual
Project costs required to perform the calculations prescribed in Exhibits B, C, and D; (b) terms
and schedule of payments of the Project financing instruments; (c) a description of any changes
to the Project financing instruments; and (d) any grants and contributions pursuant to Section 7.4.
LRAs shall provide the required data under this Section to SDCWA for submittal to
Metropolitan prior to the deadline outlined here. Any costs and supporting documentation not
submitted by the deadline will be presumed to be zero for purposes of calculating the Project
Unit Cost.
7.2 If the reconciliation data is not submitted by December 31 in accordance with Section 7.1,
Metropolitan will assess SDCWA a late penalty charge as prescribed in Metropolitan's
Administration Code as it may be amended from time to time. Currently the penalty is described
in Section 4507 (K) and set at $2,500. Metropolitan may suspend its payment of Estimated SDP
Contribution if SDCWA fails to provide reconciliation data by the ensuing April 1. During the
suspension period, SDCWA shall continue to invoice Metropolitan for the Estimated SDP
Contribution based upon the Eligible Yield for water accounting purposes. Metropolitan will
resume payment of the monthly Estimated SDP Contribution once complete data are received
and the corresponding reconciliation is complete pursuant to Section 7.3. In the event SDCWA
fails to provide reconciliation data by December 31 of the following Fiscal Year, which is
18 months after the end of the Fiscal Year for which a reconciliation is required, this Agreement
shall automatically terminate without notice or action by any Party, and SDCWA shall repay to
Metropolitan within 90 days of termination all Estimated SDP Contributions for which no
reconciliation data was provided.
7.3 Within 180 days after Metropolitan receives complete data from SDCWA pursuant to
Section 7.1, Metropolitan shall calculate the Final SDP Contribution for the Fiscal Year. The
Final SDP Contribution shall then apply retroactively to Eligible Yield for the applicable Fiscal
SDCWA -12- DRAFT SDP Agreement No. 70025
Year. An adjustment shall be computed by Metropolitan for over- or under-payment for Eligible
Yield and included on the next monthly water service invoice issued to SDCWA. As part of this
reconciliation, Metropolitan shall also consult with SDCWA to determine the Estimated SDP
Contribution for the following year based on historic cost data and expected Project activities.
7.4 All contributions other than those derived from local public agencies or California Public
Utilities Commission-regulated water companies located within SDCWA's service area
boundaries, including but not limited to state and federal grants such as the U.S. Bureau of
Reclamation and State of California, received by SDCWA, LRAs, or Poseidon prior to and
during the term of this Agreement which offset Project Unit Cost shall be deducted in the
calculation of Project Unit Cost.
SectionS: Record Keeping and Audit
8.1 Each LRA shall establish and maintain accounting records of all costs incurred by the LRA for
the construction, operation and maintenance, and replacement parts of the Project as described in
Exhibits B, C, and D. Accounting for the Project shall utilize generally accepted accounting
practices and be consistent with the terms of this SDP Agreement. These Project accounting
records must clearly distinguish all costs for the Project from each LRA's other water
production, treatment, and distribution costs. These records shall also be adequate to determine
Eligible Yield and Total Deliveries to accomplish all cost calculations contemplated in this SDP
Agreement.
8.2 Each LRA shall establish and maintain accounting records of all contributions including grants
pursuant to Section 7.4.
8.3 Each LRA shall collect Total Deliveries and Eligible Yield data for each Fiscal Year of Project
operation and retain records of that data based on the metering requirements in Section 5.
8.4 Metropolitan shall have the right to audit the records of any Party regarding Project production,
deliveries to LRAs, costs and other data relevant to the terms of this SDP Agreement for a period
of three full Fiscal Years following termination of this Agreement. Metropolitan may elect to
have such audits conducted by its staffer by others, including independent accountants, as
SDCWA -13- DRAFT SDP Agreement No. 70025
designated by Metropolitan. Carlsbad (as a necessary term in its LRA/Poseidon Agreement )
shall require Poseidon to make available for inspection to Metropolitan or its designee, upon
30 days advance notice, all records, books and other documents, including all billings and costs
incurred by contractors, relating to the construction, operation, or maintenance of the Project;
any grants and contributions, as described in Exhibits B, C, and D; or any capital cost financing
for the Project. Upon 30 days advance notice and at Metropolitan's request, each Party shall also
allow Metropolitan's personnel or its designee to accompany such Party's staff in inspecting
Poseidon's records and books for the purpose of conducting such audits of Project costs.
8.5 In lieu of conducting its own audit(s), Metropolitan shall have the right to direct any LRA to
have an independent audit conducted of all Project costs incurred in any Fiscal Year(s) pursuant
to this SDP Agreement. Such LRA shall then have an audit performed for said Fiscal Year(s) by
an independent certified public accounting firm and provide Metropolitan and SDCWA with
copies of the audit report within one year after the date the audit was requested. When requested
by Metropolitan, Carlsbad shall have an independent audit conducted of Poseidon's costs related
to Project construction and operation. The cost of any independent audit performed under this
Agreement paid by Carlsbad or other LRA is an eligible Project operation and maintenance cost
pursuant to Exhibit C. Based on the results of any independent audit, an adjustment for over- or
under-payment of Eligible Yield for each applicable Fiscal Year shall be included by
Metropolitan on the next monthly water service invoice to SDCWA.
8.6 If an LRA has incurred any capital or operation and maintenance costs that must be included in
Project Unit Costs calculations, such LRA shall retain an independent auditor satisfactory to
Metropolitan to conduct an initial audit of the Project capital costs incurred by them and their
accounting record-keeping practice and shall submit the results to Metropolitan and SDCWA
with the first reconciliation.
8.7 Carlsbad (as a necessary term in its Poseidon/LRA Agreement) shall require Poseidon to retain
an independent auditor satisfactory to Metropolitan and SDCWA to conduct an initial audit of
the Project costs and accounting record-keeping practice and submit the results to Metropolitan
and SDCWA with the first reconciliation data as outlined in Section 7 herein.
SDCWA -14- DRAFT SDP Agreement No. 70025
8.8 SDCWA and each LRA shall keep all Project records until the end of the third full Fiscal Year
following the termination of this SDP Agreement. Carlsbad (as a necessary term in its
Poseidon/LRA Agreement) shall require Poseidon to keep all Project records for at least three
full Fiscal Years following the termination of this SDP Agreement.
8.9 Carlsbad MWD (as a necessary term in its LRA/Poseidon gAreement) shall require Poseidon to
establish and maintain accounting records of all costs incurred for the construction, operation and
maintenance, and replacement parts of the Project as described in Exhibits B, C, and D.
Accounting for the Project shall utilize generally accepted accounting practices and be consistent
with the terms of this Agreement.
Section 9: Term. Amendments, and Termination
9.1 This SDP Agreement shall commence on the first date herein written and shall terminate
25 years after the date SDCWA notifies Metropolitan that the Project has begun operation or
June 30, 2040, whichever is sooner.
9.2 The Parties' respective obligations under this Agreement regarding audits and record-keeping
shall remain in effect until the end of the third full Fiscal Years after termination of this
Agreement.
9.3 This Agreement may be amended at any time by the written mutual agreement of the Parties.
9.4 If, as a result of the reporting requirements of paragraph 5.6 and consultations among the Parties
Metropolitan's General Manager reasonably determines that the Project will not become
operational by or before July 1, 2015, Metropolitan shall notify all Parties in writing of that
determination. Within 90 days of such notification, Metropolitan's General Manager may seek
the Metropolitan Board of Directors' approval to terminate the Agreement. If termination is
approved, the Parties shall have 60 days to appeal the Metropolitan Board's decision, hi absence
of a successful appeal, the Agreement shall automatically terminate and all of Metropolitan's
obligations hereunder shall terminate.
SDCWA -15- DRAFT SDP Agreement No. 70025
9.5 Metropolitan, at its sole discretion, may terminate this Agreement, and Metropolitan's
obligations under this Agreement shall terminate accordingly upon occurrence of any of the
following:
a. Eligible Yield is not delivered to customers by June 30,2020;
b. Failure of SDCWA or LRAs to comply or cause the compliance with the terms of this SDP
Agreement;
c. Occurrence of termination criteria in Sections 7.2, 9.5, 11.4, or 13 of this SDP Agreement;
d. Amendment or termination of any LRA/Poseidon Agreement that Metropolitan reasonably
determines is materially in conflict with the terms and requirements of this Agreement;
e. Any Party enters into an agreement that renders it unable to perform its responsibilities
under this Agreement; or
f. Any Party transfers or exchanges Project water outside of Metropolitan's service area.
Termination of this Agreement with regard to one Party will not trigger or imply termination of the
Agreement with regard to the remaining Parties.
Section 10: Intellectual Property
The Parties agree that any SDP funding under this Agreement is subject to a requirement that Poseidon
shall provide Metropolitan and its member public agencies in writing a fully-paid non-exclusive license
without time limit to use at no additional cost intellectual property resulting from or developed in the
course of development, design, construction, or operation of the Project. The intellectual property
subject to this provision includes, without limitation, rights under Patent No. US 6,946,081 B2 Sep 20,
2005, but excludes trade secrets of persons or entities other than Parties or Poseidon. Each
LRA/Poseidon Agreement shall contain a provision implementing this Section.
Section 11: Rate Structure Integrity
11.1 SDCWA and LRAs agree and understand that Metropolitan's rate structure as of January 1, 2004
SDCWA -16- DRAFT SDP Agreement No. 70025
("Existing Rate Structure") provides the revenue necessary to support the development of new
water supplies by local agencies through incentive payments in the Local Resources Program
(LRP), Conservation Credits Program (CCP), and the SDP. In particular, the Water Stewardship
Rate is the component of Existing Rate Structure that provides revenue for the LRP, CCP and
SDP. Further, SDCWA and LRAs acknowledge that Existing Rate Structure and all components
within that rate structure were developed with extensive public input and SDCWA participation,
and that the elements of Existing Rate Structure have been properly adopted in accordance with
Metropolitan's rules and regulations.
11.2 (a) SDCWA and LRAs agree that Metropolitan's rates set under the Existing Rate Structure may
be reset throughout the term of this Agreement to account for the cost of service, and that
SDCWA and LRAs will address any and all future issues, concerns and disputes relating to
Existing Rate Structure, through administrative opportunities available to them pursuant to
Metropolitan's public board process. As such, SDCWA and LRAs agree if they file or
participate in litigation or support legislation to challenge or modify Existing Rate Structure,
including changes in overall rates and charges that are consistent with the current cost-of-service
methodology, Metropolitan may initiate termination of this Agreement consistent with
Paragraph 11.4 below. Metropolitan agrees that any change in Existing Rate Structure, including
changes in cost-of-service philosophy or methodology would be enacted only after collaboration
and discussion with its member public agencies, and Metropolitan's public board review and
approval process.
(b) Notwithstanding the foregoing, SDCWA and LRAs retain the right to file and/or participate
in litigation and/or to support legislation without triggering the termination of this Agreement if
there are material changes to Existing Rate Structure or changes in cost-of-service methodology
used to set rates by future Metropolitan board action. SDCWA and LRAs also retain the right to
file and/or support litigation should Metropolitan, in setting rates under Existing Rate Structure,
fail to comply with public notice, open meeting, or other legal requirements associated with the
process of setting water rates and related taxes, fees, and charges. SDCWA and LRA agree that
they will not file or participate in litigation, nor will it support legislation affecting
Metropolitan's rate structure after any such change in rate structure or violation of the law
regarding rate setting processes until, and unless, it has exhausted all administrative opportunities
SDCWA -17- DRAFT SDP Agreement No. 70025
available to them pursuant to Metropolitan's public board process.
11.3 SDCWA and LRAs agree that all users of the Metropolitan conveyance and distribution system
should support the LRP, CCP, and SDP, that such projects provide benefits to Metropolitan and
the users of the system by making existing distribution and conveyance capacity available for
additional delivery, and that under Existing Rate Structure, the Water Stewardship Rate is an
element of charges properly adopted by the Metropolitan Board and properly applied to water
wheeled through the Metropolitan conveyance and distribution system.
11.4 Should SDCWA or any LRA file or support litigation, or sponsor or support legislation, that
would challenge or be adverse to Existing Rate Structure, as described in Paragraph (a) of
Section 2, Metropolitan's General Manager may file a 90-day notice of intent to terminate this
Agreement with Metropolitan's Executive Secretary, with copies to all members of
Metropolitan's Board of Directors, and contemporaneously provide SDCWA and LRAs with a
copy of the notice. Within 30 days of receipt of such notice, SDCWA and LRAs shall have the
right to request, in writing, mediation of the dispute by a neutral third party with expertise in
finance and rate setting. The mediator shall be selected by agreement of the Parties, or failing
agreement within 60 days of such request for mediation, a mediator shall be selected by the
Metropolitan Board of Directors from a list of at least four candidates, one from SDCWA, one
from LRAs and two of which will be supplied by Metropolitan's General Manager. The cost of
the mediation shall be borne equally by the Parties. The request for mediation shall also serve to
stay the 90-day notice of intent to terminate, but for no more than 90 days beyond the filing of
the notice of request for mediation, unless otherwise agreed in writing by the parties. If
mediation does not result in an agreement acceptable to each Party to this Agreement within the
time provided herein, the notice of intent to terminate shall be reinstated. The Metropolitan
Board of Directors shall act to approve or disapprove termination of this Agreement, and all of
Metropolitan's obligations hereunder shall terminate if approved, on or before the ninetieth day
following filing of the notice to terminate or, if mediation has been requested as described above,
the ninetieth day following the request for mediation (or other date agreed in writing by the
<$
Parties.)
11.5 Metropolitan, SDCWA, and LRAs agree that should litigation or legislation brought forth or
SDCWA -18- DRAFT SDP Agreement No. 70025
sponsored by third parties result in changes to Existing Rate Structure, this Agreement will
continue in effect unless mutually agreed in writing by the parties.
11.6 Should Metropolitan and its member agencies agree on an alternative rate and revenue structure
that obviates the need for this section on Rate Structure Integrity, this section shall be amended
or deleted to conform to such action.
11.7 Nothing in Sections 11.1 through 11.7, inclusive, shall be construed to preclude SDCWA, or its
representative to the Metropolitan board of directors, or the LRA's from advocating different or
additional positions, cost of service allocations, or rate structures during any administrative or
rate setting process or study of Metropolitan.
Section 12: Use of Metropolitan's Facilities
Any use of Metropolitan's facilities for delivery of Desalinated Seawater shall be the subject of an
amendment to this Agreement or a separate agreement between the affected Parties.
Section 13: Metropolitan's Imported Water Entitlements
The Parties agree that this Agreement shall terminate forthwith if Metropolitan reasonably determines
that as a result of SDCWA's or LRA's action or support, Metropolitan is required by any statute or
administrative order, court, or other entity to reduce, defer, or exchange entitlement to or reduce usage
of Colorado River water, State Water Project water, or other water supplies contracted for by
Metropolitan as a result of expected or actual production of the Desalinated Seawater by the Project.
Section 14: Hold Harmless and Liability
SDCWA and each LRA agree at its sole cost and expense to protect, indemnify, defend, and hold
harmless Metropolitan, its Board of Directors, officers, representatives, agents and employees from and
against any and all claims and liability of any kind (including, but not limited to, any claims or liability
for injury or death to any person, damage to property, natural resources or the environment, or water
quality problems) that arise out of or relate to SDCWA's or such LRA's role in the Project, including
without limitation any use, sale, exchange or distribution of Project water. Such indemnity shall include
all damages and losses related to any claim made, whether or not a court action is filed, and shall include
SDCWA -19- DRAFT SDP Agreement No. 70025
attorney fees, administrative and overhead costs, engineering and consulting fees, and all other costs
related to or arising out of such claim of liability.
Section 15: Notice
Any notice, payment or instrument required or permitted to be given hereunder shall be deemed received
upon personal delivery or 24 hours after deposit in any United States post office, first class postage
prepaid and addressed to the Party for whom intended, as follows:
The Metropolitan Water District
of Southern California
Post Office Box 54153
Los Angeles, CA 90054-0153
Attention: Water Resource Management
Group Manager
The San Diego County Water Authority
4677 Overland Avenue
San Diego, CA 92123
Attention: Director of Water Resources
Carlsbad Municipal Water District
5950 El Camino Real
Carlsbad CA 92008
Attention: General Manager
City of Oceanside
300 N Coast Hwy
Oceanside CA 92054-2886
Attention: Water Utilities Director
Olivenhain Municipal Water District
1966 Olivenhain Road
Encinitas CA 92024
Attention: General Manager
Rainbow Municipal Water District
3707 Old Hwy 395
Fallbrook CA 92028
Attention: General Manager
Rincon del Diablo Municipal Water District
1920 N Iris Lane
Escondido CA 92026-1318
Attention: General Manage
Santa Fe Irrigation District
PO Box 409
5920 Linea Del Cielo
Rancho Santa Fe CA 92067
Attention: General Manager
Sweetwater Authority
505 Garrett Avenue
Chula Vista CA 91910
Attention: General Manager
Vallecitos Water District
201 Vallecitos de Oro
San Marcos CA 92069-1453
Attention: General Manager
Valley Center Municipal Water District
PO Box 67
29300 Valley Center Road
Valley Center CA 92082
Attention: General Manager
SDCWA -20-DRAFT SDP Agreement No. 70025
Any Party may change such address by notice given to each of the other Parties as provided in this
section.
Section 16: Successors and Assigns
The benefits and obligations of this Agreement are specific to the Parties and are not assignable.
Section 17: Integration
This Agreement comprises the entire integrated understanding among the Parties concerning the Project,
and supersedes all prior negotiations, representations, or agreements.
S ection 18: S everability
The partial or total invalidity of one or more sections of this Agreement shall not affect the validity of
the entire Agreement.
Section 19: No Third Party Beneficiary
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 any other form of
organization or association of any kind that is not a party to this Agreement.
Section 20: Governing Law
The law governing this Agreement shall be the laws of the State of California and the venue of any
action brought hereunder shall be in Los Angeles County, California.
SDCWA -21- DRAFT SDP Agreement No. 70025
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first
hereinabove written.
APPROVED AS TO FORM:
Karen L. Tachiki
General Counsel
THE METROPOLITAN WATER DISTRICT OF
SOUTHERN CALIFORNIA
Jeffery Kightlinger
General Manager
By:
Deputy General Counsel
Date:
By:
Date:
Debra C. Man
Chief Operating Officer
APPROVED AS TO FORM:THE SAN DIEGO COUNTY WATER
AUTHORITY
By:
General Counsel
Date:
By:
Date:
Maureen Stapleton
General Manager
APPROVED AS TO FORM:CARLSBAD MUNCIPAL WATER DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
SDCWA -22-DRAFT SDP Agreement No. 70025
I/
APPROVED AS TO FORM:VALLEY CENTER MUNICIPAL WATER
DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
APPROVED AS TO FORM:RINCON DEL DIABLO MUNICIPAL WATER
DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
APPROVED AS TO FORM:SWEETWATER AUTHORITY
By:
General Counsel
Date:
By:
Date:
Chairman, Board of Directors
APPROVED AS TO FORM:RAINBOW MUNICIPAL WATER DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
SDCWA -23-DRAFT SDP Agreement No. 70025
APPROVED AS TO FORM:SANTA FE IRRIGATION DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
APPROVED AS TO FORM:VALLECITOS WATER DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
APPROVED AS TO FORM:OLIVENHAIN MUNICIPAL WATER
DISTRICT
By:
General Counsel
Date:
By:
Date:
General Manager
APPROVED AS TO FORM:CITY OF OCEANSIDE
By:
City Counsel
Date:
By:
Date:
Mayor, City of Oceanside
In duplicate
O:a\s\contracts-other agreements\SDCWA SDP Agreement 70025 DRAFT 05-26-09.doc
SDCWA -24- DRAFT SDP Agreement No. 70025
EXHIBIT A
PROJECT DESCRIPTION
(note: SDCWA to provide more information on intake, outfall, etc. to
better define the project boundaries.)
Carlsbad Seawater Desalination Project
Overview
Poseidon Resources LLC, a Delaware limited liability company, will construct and operate the
capital facilities collectively known as the Carlsbad Seawater Desalination Project (Project). The
Project will treat about 56,000 acre-feet per year (AFY) of seawater to potable standards and to
sell that water to nine of San Diego County Water Authority's local retail agencies for
beneficial use within SDCWA's and Metropolitan's service area. The desalination facility will
be located adjacent to the existing Encina Power Station ("EPS"), immediately south of the Agua
Hedionda Lagoon on the Pacific Ocean, within the City of Carlsbad, in northern San Diego
County. Attached map shows the project location.
Project Facilities
The Project consists of a seawater desalination treatment plant, xx pump stations, xx storage
tanks, and transmission pipelines to deliver the treated water to the points of connections to
LRAs distribution system.
The desalination process includes pretreatment, reverse osmosis desalination, and disinfection
and product water stabilization. The Project does not require construction of new intake and
outfall structures because it will use the EPS' cooling water discharge outfall for water intake to
the plant and for disposal of brine generated by the project pursuant to a permit issued by the San
Diego Regional Water Quality Control Board.
The transmission pipelines will deliver water from the seawater desalination plant to the cities of
Carlsbad, Vista, Oceanside, and San Marcos and eventually connect to the SDCWA's and
Vallecitos Water District's distribution system. In addition, another lateral would be
constructed a to supply water to the Carlsbad Municipal Water District's Santa Fe reservoir. The
rest of LRAs will receive the Project water through SDCWA's distribution system.
Source of water
Source of water will be from the Pacific Ocean via the EPS' cooling water discharge outfall.
Project users
Poseidon has entered into separate agreements with LRAs listed below for the purchase of the
Project water, which will be used in the cities of Carlsbad, Oceanside, San Marcos, San Diego,
Encinitas, Solana Beach, Rancho Santa Fe, Escondido, Vista, Chula Vista, National City and the
unincorporated communities of Rainbow, Bonsall and Fallbrook.
SDCWA -25- DRAFT SDP Agreement No. 70025
Public Water Agency
Carlsbad Municipal Water District
Valley Center Municipal Water District
Rincon del Diablo Municipal Water District
Sweetwater Authority
Rainbow Municipal Water District
Vallecitos Water District
Santa Fe Irrigation District
Olivenhain Municipal Water District
CityofOceanside
Project Water (AFY)
16,000- 25,100 AFY
7,500 AFY
4,000 AFY
2,400 AFY
7,500 AFY
7,500 AFY
2,000 AFY
0 - 5,000 AFY
0 - 5,000 AFY
Date Signed
September 28, 2004
December 20, 2005
March 14, 2006
January 7, 2007
July 24, 2007
September 5, 2007
September 7, 2007
October 12, 2007
December 19, 2007
The City of Oceanside and Olivenhain Municipal Water District will receive variable amounts of
water from the Project depending on how much Project water is used by Carlsbad.
Project Map - SDCWA to provide a simple location map, not to scale, showing the
location of treatment plant and distribution system including pipelines, storage
tanks, and pump stations as -well as point of connections to each LRA and SDCWA
distribution system.
SDCWA -26-DRAFT SDP Agreement No. 70025
EXHIBIT B
ANNUALIZED CAPITAL COMPONENT
The following provisions apply to costs incurred by Poseidon and each LRA.
1. The annual reconciliation in Section 7 calls for calculating the Project Unit Cost. This
Exhibit outlines eligible Project Capital Costs and methods of calculating the Annualized
Capital Component, which is one of the components of the Project Unit Cost as defined
in Section 1.
2. The Annualized Capital Component shall be computed using only the following incurred
costs by Poseidon or LRA for the Project:
a. Design and construction management services.
b. Construction of Project facilities, more particularly described in Exhibit A.
c. LRA's administration of the Project design, construction, and start-up, not to
exceed three percent of construction costs unless otherwise approved in writing
by Metropolitan.
d. Permits, including required data collection.
e. lease or purchase of land, right-of-way and easements for Project described in
Exhibit A. The land must be owned by a public agency or public trust.
f. Environmental documentation and mitigation measures directly related to the
implementation or operation of the Project and required to comply with applicable
environmental permits and laws, including but not limited to the California
Environmental Quality Act, National Environmental Policy Act, and the
California and Federal Endangered Species Acts. Environmental documentation
costs shall commence with the Notice of Preparation and conclude with the filing
of the Notice of Determination. All properties purchased for environmental
restoration or mitigation as required to develop the Project must be owned by a
public agency or public trust.
g. All contributions as outlined in Section 7.4 of this Agreement shall be treated as
negative capital cost values for the purpose of computing the Annualized Capital
Component.
3. Cost of the following items shall not be used to calculate the Annualized Capital
Component:
a. Treatment and distribution facilities beyond the Project's points of connection.
SDCWA -27- DRAFT SDP Agreement No. 70025
b. Existing facilities, land, right-of-way, and easements owned by SDCWA, LRAs,
or Poseidon.
c. Feasibility studies.
d. Deposit of any reserve funds required as a condition of financing.
e. Payments made to another department or element of SDCWA, LRAs, or
Poseidon, unless otherwise approved in writing by Metropolitan.
f. All other items not specified in Section 1 of this Exhibit.
g. Purchase of any land or right-away not owned by a public trust or public agency.
h. Fines, penalties, settlements, or judgments due to Project operation.
i. Legal fees.
4. Annualized Capital Cost (ACCost) in dollars per year shall be computed using the
following procedure:
a. For fixed-interest rate financing:
ACCost = CRFi x Pi + CRF2 x P2 + ... + CRFj x Pj
Where:
PJ is each portion of incurred capital cost for Project with a distinct financing
arrangement.
CRFj is the capital recovery factor for each distinct financing arrangement, as
follows:
Where:
i is the interest rate (%).
n is the term of financing (in years) commencing in the first Fiscal Year of
Project operation. For all capital financing, cash expenditures, and grants and
contributions received after the Project begins operation, annual payments
shall be calculated, using the above process, beginning in the Fiscal Year the
costs occur.
j is the number of each separate financing element.
SDCWA -28- DRAFT SDP Agreement No. 70025
In the first Fiscal Year and Fiscal Year n+1 of production of Eligible Yield,
each amortization for the calculation of ACCost shall be prorated by the
number of days needed to achieve exactly n years of amortization following
the first day of production of Eligible Yield.
b. For variable-interest rate financing, annual payments shall be computed based on
the actual payments made in the applicable Fiscal Year according to LRA's or
Poseidon's financing documents. Any principal payments toward the Project
capital cost before the Project operation will be treated as cash. Carlsbad shall
obtain from Poseidon and provide SDCWA with the accumulated paid principal
pursuant to Section 7.1.
c. For fixed-interest rate financing with a non-uniform annual payment schedule, an
economically-equivalent uniform annual payment schedule shall be calculated
based on an "Internal Rate of Return" analysis to establish the annualized capital
cost.
d. Project capital costs not covered by a financing arrangement described above and
all grants and contributions as defined in Section 7.4 shall be amortized over
25 years at an interest rate equal to the lesser of:
a) Metropolitan's most recent weighted cost of long-term debt on June 30 in the
year the capital expenditure occurred; or
b) the Fiscal Year average of the 25-bond Revenue Bond Index (RBI) as
published in the Bond Buyer, or such other index that may replace the RBI,
over the most recent Fiscal Year prior to the date the replacement cost was
incurred.
All grants or contributions shall be amortized as negative capital cost values
beginning in the year that money was received.
e. After the first Fiscal Year of operation, only refinancing changes which lower the
Annualized Capital Component shall be included in the Annualized Capital
Component calculation of each subsequent Fiscal Year.
f. If the Project capital cost is part of a broad financing arrangement, annual
payments shall be calculated by prorating the annual payments of the broad
financing using the ratio of the Project capital cost for initial principal of the
broad financing arrangements.
5. The Annualized Capital Component (ACCom) in dollars per acre-foot for purposes of
determining the Project Unit Cost each Fiscal Year shall be calculated using the
following formula:
ACCom = ACCost / Total Deliveries
SDCWA -29- DRAFT SDP Agreement No. 70025
EXHIBIT C
OPERATION AND MAINTENANCE COMPONENT
The following provisions apply to costs incurred by Poseidon and each LRA.
1. The annual reconciliation in Section 7 calls for calculating the Project Unit Cost. This
Exhibit outlines eligible Project Operation and Maintenance Costs and methods of
calculating the Annualized Operation and Maintenance Component, which is one of the
components of the Project Unit Cost as defined in Section 1.
2. The Operation and Maintenance Component shall be computed using only the following
incurred costs by LRAs and Poseidon during the applicable Fiscal Year.
a. Professional consulting services for Project operation, maintenance and audit,
excluding daily Project operation.
b. LRAs and Poseidon's labor costs or contract labor costs equal to:
$ x (CPI/CPI2009)
Where CPI is the Consumer Price Index published by the US Bureau of Labor
Statistics in July of applicable Fiscal Year and CPI 2009 is the CPI for July 2009.
In the third year of Project operations, and every third year thereafter, any Party
may request the other Parties to revise the Eligible labor cost. Labor cost in the
first year of production of Eligible Yield and the last year of this Agreement shall
be prorated based on the number of days of production of Eligible Yield.
c. Chemicals and supplies for Project operation and maintenance.
d. Net electrical energy (recovered energy shall be deducted from energy purchased)
for eligible facilities and distribution system operations.
e. Contractor services and supplies for Project facilities, operation, maintenance, and
repair to maintain reliable system operation and achieve regulatory compliance.
f. Monitoring required by permits, including water quality sampling and analysis of
Desalinated Seawater produced by the Project.
g. Replacement of Project parts costing less than or equal to $100,000.
h. Poseidon's profit, not to exceed 10 percent of the actual O&M costs incurred
i. All contributions as outlined in Section 7.4 of this Agreement shall be treated as
negative operation and maintenance cost values for the purpose of computing the
SDCWA -30- DRAFT SDP Agreement No. 70025
Operation and Maintenance Component,
j. Cost of audits paid by LRAs pursuant to Section 8.
k. Wheeling charges paid to SDCWA for delivery of Project water to LRAs.
3. Costs of the following items shall not be used to calculate the Operation and Maintenance
Component:
a. Operation and maintenance of any facilities beyond the Project's points of
connection.
b. Payments made to another department or element of SDCWA, LRAs, or
Poseidon, unless otherwise approved in writing by Metropolitan.
c. Public outreach, education, and water marketing activities including but not
limited to preparing brochures and handout materials, training, meetings, and
workshops.
d. Fines, penalties, settlements, or judgments due to Project operation.
e. Legal fees.
f. All others not specified in Section 1 of this Exhibit.
g. Reserved funds.
4. The Annualized Operation and Maintenance Component (O&MC) in dollars per acre-
foot for purposes of determining the actual Project Unit Cost each Fiscal Year shall be
calculated using the following formula:
O&MC = (Actual Annual Cost of O&M) / (Total Deliveries)
SDCWA -31 - DRAFT SDP Agreement No. 70025
EXHIBIT D
ANNUALIZED REPLACEMENT COMPONENT
The following provisions apply to costs incurred by Poseidon and each LRA.
1. The annual reconciliation in Section 7 calls for calculating the Project Unit Cost. This
Exhibit outlines eligible Project Replacement Costs and methods of calculating the
Annualized Replacement Component, which is one of the components of the Project Unit
Cost as defined in Section 1.
2. The Annualized Replacement Component shall be computed using incurred costs for the
following:
a. Replacement cost of major Project parts costing more than $100,000.
b. Salvage value of replaced parts shall be a negative replacement cost.
c. Poseidon's profit, not to exceed 10 percent of the replacement cost
d. All contributions as outlined in Section 7.4 of this Agreement shall be treated as
negative replacement cost values for the purpose of computing the Annualized
Replacement Component.
3. Costs of the following items shall not be used to calculate the Annualized Replacement
Component:
a. Replacement of any facilities beyond the Project's points of connection.
b. Any capital or operation and maintenance cost as previously defined in Exhibits B
and C, Annualized Capital Component and Operation and Maintenance
Component, respectively.
c. Reserve funds.
4. The Annualized Replacement Cost (ARCost) shall be calculated using the same
procedure as for capital amortization (ACCost) in Exhibit B except that:
a. For membrane replacement, n is the number of years the replaced membranes
were in service; for all other replacement costs, n is 25 years.
b. i is the interest rate in the Fiscal Year of replacement established in Section 4d of
Exhibit B.
c. P is the actual costs of replacement in the Fiscal Year.
5. The Annualized Replacement Component (ARCom) for each replacement occurrence in
dollars per acre-foot shall be calculated using the following procedure:
ARCom = ARCost / Total Deliveries
SDCWA -32- DRAFT SDP Agreement No. 70025
EXHIBIT E
DEFERRED COST
Deferred Cost (DC) applicable to the determination of the Final SDP Contribution is computed
as follows:
DC - EYP x (PUCP - RateP - 250) / TD
where,
DC = Deferred Cost ($/AF)
EYP = Eligible Yield in the previous Fiscal Year (AF)
PUCP = Project Unit Cost, as defined in Section 1.9, in the previous Fiscal Year ($/AF)
RateP = Metropolitan's applicable full service treated water rate in the previous Fiscal
Year ($/AF)
250 = Maximum Final SDP Contribution ($/AF)
TD = Total Deliveries in the Fiscal Year that the reconciliation is performed
• There shall be no DC value carryover upon Agreement termination.
• If DC calculated as a negative number using the above equation, DC will be Zero.
Example:
The following hypothetical example demonstrates how DC is calculated and used in calculation of the SDP
Contribution:
Fiscal
Year
1
2
3
4
5
_
Met's Water
Rate ($/AF)
431
431
431
431
431
-
Total
Deliveries
(AF)
2,600
3,000
3,500
4,000
4,200
_
Eligible
Yield (AF)
2,100
2,500
3,000
3,500
4,200
_
Project
Unit Cost
($/AF)
781
670
721
600
585
„
DC
($/AF)
0
70
0
30
0
_
SDP
Contribution
($/AF)
250
250
250
199
154
-
Fiscal Year 1: DC = 0 because project was not operating in the previous year
SDP Contribution = 781 - 431 > 250 •*• SDP Contribution = 250 $/AF
Fiscal Year 2: DC = 2,100 x (781 - 431 - 250) / 3,000 = 70 $/AF
SDP Contribution = 670 + 70 - 431 > 250 •» SDP Contribution = 250 $/AF
Fiscal Year 3: DC = 2,500 x (670 - 431 - 250) / 3,500 < 0 •» DC = 0
SDP Contribution = 721 - 431 > 250 •* SDP Contribution = 250 $/AF
Fiscal Year 4: DC = 3,000 x (721 - 421 - 250) / 4,000 = 30 $/AF
SDP Contribution = 600 + 30 - 431 = 199 $/AF
Fiscal Year 5: DC = 3,500 x (600 - 431 - 250) / 4,200 <0 •» DC = 0
SDP Contribution = 585 - 431 = 154 $/AF
SDCWA -33-DRAFT SDP Agreement No. 70025
EXHIBIT F
PERFORMANCE PROVISIONS
1. This Exhibit outlines expected minimum Project production to ensure the IRP goal
for SDP is achieved, which was the basis for entering into this SDP Agreement, hi
addition, these Performance Provisions conform to the recommendation of a recent
internal audit on local resources program to reduce Metropolitan's financial exposure
to non-performing projects and allocating that financial assistance to other projects
that could help the region to achieve IRP water supply reliability goal. Failure to
meet these Performance Provisions will result in Metropolitan taking steps to develop
alternative resources.
2. The following Contract Yield adjustments apply:
a.If the Eligible Yield does not reach the target yield of 37% of the Contract Yield
during the 1st through 4th full Fiscal Year following Start of Operation, then
Metropolitan will reduce the Contract Yield (or the Revised Contract Yield) by
the shortfall using the highest Eligible Yield produced in that period. For
example, the Contract Yield of a project with the following performance will be
revised from 56,000 AFY to 52,000 AFY for Scenario 1 while there would be no
adjustment under Scenario 2:
Contract Yield = 56,000 AFY
Full Fiscal Year after
Agreement Execution
1
2
3
4
Scenario 1
Eligible Yield
(AFY)
10,000
12,000
14,000
16,720
Scenario 2
Eligible Yield
(AFY)
10,000
16,000
20,000
24,000
37% of the Contract Yield = 0.37 x 56,000 = 20,720 AFY
Scenario 1: Shortfall = 20,720 - 16,720 - 4,000 AFY
Revised Contract Yield = 56,000 - 4,000 = 52,000 AFY
Scenario 2: Since, the Eligible Yield in the year 4 is greater than 20,720, no
adjustment is required.
b. If the Eligible Yield does not reach the target yield of 63% of the Contract Yield
during the 5th through 9th full Fiscal Year following Start of Operation, then
Metropolitan will reduce the Contract Yield (or the Revised Contract Yield) by
the shortfall using the highest Eligible Yield produced in that period. For
SDCWA -34-DRAFT SDP Agreement No. 70025
example, the Revised Contract Yield of a project with the following performance
will be revised from 52,000 AFY to 48,000 AFY for Scenario 1 while there would
be no adjustment under Scenario 2:
Full Fiscal Year after
Agreement Execution
5
6
7
8
Scenario 1
Eligible Yield
(AFY)
18,000
20,000
24,000
28,760
Scenario 2
Eligible Yield
(AFY)
28,000
30,000
32,000
36,000
Scenario 1:
Revised Contract Yield = 52,000 AFY
63% of the Revised Contract Yield = 0.63 x 52,000 = 32,760 AFY
Shortfall = 32,760 - 28.760 = 4,000 AFY
Revised Contract Yield = 52,000 - 4,000 = 48,000 AFY
Scenario 2:
Contract Yield - 56,000 AFY
63% of the Contract Yield - 0.63 x 56,000 = 35,280 AFY
Since, the Eligible Yield in the year 8 is greater than 35,280, no
adjustment is required.
c. If the Eligible Yield does not reach the target yield of 100% of the Contract Yield
during the 9th through 12th full Fiscal Year following Start of Operation (and
every four-year period thereafter), then Metropolitan will reduce the Contract
Yield (or the Revised Contract Yield) by the shortfall using the highest Eligible
Yield produced in that period. The adjustment will be made using the same
methodology shown in the above example.
SDCWA -35-DRAFT SDP Agreement No. 70025
EXHIBIT G
REQUIRED TERMS OF LRA-POSEIDON AGREEMENT FOR ACQUISITION
OF WATER FROM CARLSBAD SEAWATER DESALINATION PROJECT
The agreement between each LRA and Poseidon regarding acquisition of water from the
Carlsbad Seawater Desalination Project shall include the following terms:
Audits and Record-Keeping
Poseidon shall provide all reasonable assistance and cooperation to enable Carlsbad or any LRA
to comply with its audit, cost-accounting, disclosure, and record-keeping provisions of this
Agreement.
Indemnification
"Poseidon agrees at its sole cost and expense to protect, indemnify, defend, and hold harmless
Metropolitan Water District of Southern California, its Board of Directors, officers,
representatives, agents or employees from and against any and all claims and liability of any kind
(including, but not limited to, any claims or liability for injury or death to any person, damage to
property, natural resources or the environment, or water quality problems) that arise out of or
relate to construction, operation, repair, or ownership of the Carlsbad Seawater Desalination
Project. Such indemnity shall include all damages and losses related to any claim made, whether
or not a court action is filed, and shall include attorney fees, administrative and overhead costs,
engineering and consulting fees, and all other costs related to or arising out of such claim of
liability."
"Poseidon agrees at its sole cost and expense to protect, indemnify, defend, and hold harmless
San Diego County Water Authority, its Board of Directors, officers, representatives, agents or
employees from and against any and all claims and liability of any kind (including, but not
limited to, any claims or liability for injury or death to any person, damage to property, natural
resources or the environment, or water quality problems) that arise out of or relate to
construction, operation, repair, or ownership of the Carlsbad Seawater Desalination Project.
Such indemnity shall include all damages and losses related to any claim made, whether or not a
court action is filed, and shall include attorney fees, administrative and overhead costs,
engineering and consulting fees, and all other costs related to or arising out of such claim of
liability."
Intellectual Property
Poseidon shall provide Metropolitan, in writing, a non-exclusive license without time limit
authorizing Metropolitan and each of its member public agencies the right to use at no additional
cost or payment to Poseidon any intellectual property resulting from or developed in the course
SDCWA -36- DRAFT SDP Agreement No. 70025
of development, design, construction, or operation of the Project. The intellectual property
subject to this provision includes, without limitation, rights under Patent No. US 6,946,081 B2
Sep 20, 2005, but excludes trade secrets of persons or entities other than Parties or Poseidon.
SDCWA -37- DRAFT SDP Agreement No. 70025
UV