HomeMy WebLinkAbout2004-09-28; Municipal Water District; 577; Approval of Water Purchas AgreementCARLSBAD MUNICIPAL WATER DISTRICT- AGENDA BILL Jd
AB# 577 ,
MTG. 9/28/04
DEPT. ADMIN
SERVICES
TITLF:
APPROVAL OF WATER PURCHASE AGREEMENT
BETWEEN THE CARLSBAD MUNICIPAL WATER DISTRICT
AND POSEIDON RESOURCES (CHANNELSIDE) LLC
CITY DEPT- ATTY. Hw
RECOMMENDED ACTION:
Staff recommends that the Water Board hear the staff report, and if appropriate, take one of
the following actions
I. Review the draft Water Purchase Agreement and refer comments and suggestions
for revisions to staff for further negotiation with Poseidon
2. Adopt Resolution No. 1226 approving the Water Purchase Agreement with
Poseidon Resources (Channelside) LLC, subject to any changes identified by the
Water Board.
3. Defer action on the Water Purchase Agreement until the Council Subcommittee has
completed its meetings with the County Water Authority representatives.
4. Accept the report and take no action.
ITEM EXPLANATION:
In June 2000, Poseidon Resources came before the Water Board asking for the Board’s
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 seawater desalination plant
in Carlsbad. The Water Board approved Poseidon’s request (Resolution 1093, 6/27/00), an
action that set into motion the process that unfolded during the succeeding four years.
The Water Board recognized early on that there were two paths that could lead to the
development of a desalination plant in Carlsbad. One would be a public project owned and
operated by San Diego County Water Authority (SDCWA), developed through the normal
public works process of design, bidding, government oversight, distribution, and pricing.
The other would be a private project developed by Poseidon, 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 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 history of the negotiations with both SDCWA and Poseidon Resources is
summarized in the attached report. The Board should note that, following SDCWA Board
action at a special meeting on August 12, 2004, talks between SDCWA and Carlsbad
reopened. The goal is to complete these negotiations prior to the Board’s meeting on
September 28, 2004. Staff will provide a full update on these talks at that meeting.
3/f PAGE 2 OF AGENDA BILL NO.
The purpose of this agenda bill is to report to the Water Board that staff completed
negotiations with Poseidon on the Water Purchase Agreement (WPA) and is prepared to
present the agreement to the Water Board for consideration. The current form of the
agreement meets most of the Water Board’s goals, and provides the ability to purchase up
to 100% of the local potable water supply directly from the privately owned desalination
plant.
Under the goals of Quantify and Qualify, the WPA provides Carlsbad the right to purchase
up to 25 Million Gallons Per Day (MGD) of water from the desalination plant. This water will
meet the District’s water quality standards, and be provided to the district at specified
delivery points.
With regard to Reliabilify, the agreement provides that if the plant delivers less than a
specified amount of water each year, Carlsbad will receive a payment of liquidated
damages from Poseidon. In addition, the agreement is conditioned on Carlsbad receiving a
backup supply of water from SDCWA to assure that local residents water needs are
covered at all times.
Of particular concern to staff has been the definition of Price. The guiding principal in
negotiating this agreement has been the Water Board’s direction that Carlsbad residents
should pay no more for desalinated water than they would otherwise pay for water delivered
from SDCWA. The pricing plan that is currently reflected in the draft WPA achieves
Carlsbad’s goals with regard to the cost of water (See section 3 and schedule 3 of the
WPA).
Since the WPA is based on a Take-If-Delivered concept where Carlsbad only pays for water
that is actually delivered by Poseidon, there are no payments to Poseidon that are not
directly tied to the delivery of water.
The WPA includes a number of conditions that must be satisfied prior to Carlsbad having
an obligation to purchase water from the project. These include the following:
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5.
CEQA
a. District cannot commit to purchase any water until all California Environmental
Quality Act (CEQA) processes are complete
b. If the CEQA process has not been completed within 24 months of the date of
the WPA, either party may terminate the agreement .
Wafer Rates - If Poseidon has determined that the water rates set by the pricing
section of the agreement are insufficient to implement the project; Poseidon may
terminate the agreement.
Applicable Laws and Permits - The agreement requires that Poseidon or its
subcontractors must have complied with all applicable laws, and received all
necessary approvals and permits.
Sale of Remaining Output - If Poseidon has not entered into agreements to sell the
remaining output of the project within 24 months, either party may terminate the
agreement.
Delively Points - If the parties have not agreed on delivery points within 24 months of
the WPA date either party may terminate the agreement.
PAGE 3 OF AGENDA BILL NO. 577
6. Delivery Regime - If the parties have not determined an acceptable delivery regime
within 24 months of the WPA date, either party may terminate the agreement.
7. Delivery Charge - The parties must agree on a mutually acceptable delivery charge.
8. Monitoring and Testing - The parties must develop a mutually acceptable system
testing and monitoring protocol.
9. Subsidy - If Carlsbad has not received the $250 per acre-foot MWD subsidy (or an
equivalent subsidy, from other sources) the agreement may be terminated.
IO. Development Agreement - The agreement is conditioned on the parties entering into
a Development Agreement. A proposed term sheet is attached to the WPA.
11. Backup Water Supply - The agreement is conditioned on Carlsbad receiving an
acknowledgement from SDCWA that Carlsbad is eligible to receive backup water
when needed.
12.Cabrillo Consent - Within 24 months, Cabrillo Power must have provided the
necessary consent allowing the District to exercise its rights under this agreement.
ENVIRONMENTAL REVIEW:
The proposed Agreement itself will not have any adverse physical environmental impacts.
Instead, the Agreement is for the purchase of water from a proposed desalination project
which will receive all appropriate review under the California Environmental Quality Act and
an EIR for the project is currently being prepared. The Agreement itself requires
compliance with CEQA prior to any water purchase and it does not commit the District to
purchase any water or make any financial obligations or encumbrances until after that time.
Since the Agreement itself will not have any physical impact on the environment, the
consideration of the Agreement 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:
The long-term fiscal impact of this agreement is difficult to project. If the project is
successful, Carlsbad will be purchasing high-quality water from the desalination plant at a
price that is competitive with present SDCWA supplies.
The Public Works Director continues to be concerned about the cost of increased
maintenance and replacement of water lines and equipment that could result from
delivering more chemically aggressive water through the existing water distribution system.
Extensive testing protocols have been designed into the WPA to identify any potential
problems before water reaches Carlsbad’s system, and to assure that adjustments are
made to the water quality to eliminate any potential for system damage.
It is unlikely that Carlsbad will reduce its capital improvement program or other water
system investments due to this agreement. The need to rely on SDCWA for backup water,
and the relative uncertainty that still surrounds this project requires that Carlsbad continue
to develop its ability to receive traditional water supplies as well as desalinated water.
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PAGE 4 OF AGENDA BILL NO. 577
There is currently no plan to invest Water District money in the development of this project.
The WPA anticipates a totally private project constructed using private financing. If grant
funds become available to fund portions of the, project, the Water Board may reconsider this
position.
Carlsbad may elect to construct and own certain portions of the water distribution system.
Any decision to change the water system Capital improvement Program will be based on a
future analysis of the effect of desalinated water deliveries on existing system design, and
will be subject to Board approval.
EXHIBITS:
I. Resolution No 1226 approving the Water Purchase Agreement with Poseidon
Resources (Channelside) LLC
2. Memo - Desalination Project Agreement with Poseidon Resources, September 28,
2004 3. Draft Water Purchase Agreement
DEPARTMENT CONTACT: Jim Elliott, (760) 602-2409, email: jelli@ci.carlsbad.ca.us
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RESOLUTION NO. 1226
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE
CARLSBAD MU N IC I PAL WATER DISTRICT, CARLSBAD,
CALIFORNIA AUTHORIZING THE APPROVAL OF AN
AGREEMENT BETWEEN THE CARLSBAD MUNICIPAL WATER
DISTRICT AND POSEIDON RESOURCES (CHANNELSIDE) LLC
FOR THE PURCHASE OF WATER
WHEREAS, the Board of Directors of the Carlsbad Municipal Water
District adopted Resolution No. 1093 on June 27, 2000, authorizing Poseidon
Resources (Channelside) LLC (hereafter referred to as “Poseidon Resources”) to
conduct a feasibility study on the feasibility of constructing and operating a seawater
desalination project in Carlsbad; and
WHEREAS, Poseidon Resources submitted a feasibility study to the
Board of Directors containing findings that showed a seawater desalination plant
producing up to 50 million gallons a day could feasibly be constructed on land adjacent
to the Encina Power Plant where the power plant’s seawater intake and heated water
outfall could be used to support the desalination project; and
WHEREAS, the Board of Directors considered the report and authorized
an additional, independent study; and
WHEREAS, since the proposed desalination project would produce water
in excess of the District’s needs, it would be necessary to include other water agencies
as users of the anticipated output; and
WHEREAS, the Board of Directors participated in a study commissioned
by the County Water Authority and conducted by the firms of Parsons Brinckerhoff
Quade and Douglas, R.W. Beck and Tectratech to produce an independent review of
the Poseidon Resources Study. A report was submitted to the Board for its
consideration in final form in June 2003 and concluded that Poseidon Resources 5
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business model would produce water with an average per-acre-foot price that was 15-
38% more expensive than a similar project constructed by the San Diego County Water
Authority; and
WHEREAS, thereafter, the San Diego County Water Authority concluded
that it would be in the region’s best interests to allow Carlsbad and Poseidon Resources
to work on developing a local project rather than continue its discussions with Poseidon
Resources for the project. Discussions between District staff and Poseidon Resources
have resulted in the proposed water purchase agreement which is on file in the Office of
the City Clerk; and
WHEREAS, the Board of Directors of the Carlsbad Municipal Water
District has reviewed the proposed Agreement and received comments and input from
the public, users, rater payers, water experts, other public agencies and others,
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the
Carlsbad Municipal Water District as follows:
1. That the above recitals are true and correct.
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2. The Water Purchase Agreement is approved in concept and referred to
staff for a return of documents incorporating the comments and suggestions made by a
majority of the directors.
PASSED, APPROVED AND ADOPTED at a regular meeting of the Board
of Directors of the Carlsbad Municipal Water District held on the 28th day of
September 2004 by the following roll call vote, to wit:
AYES: Board Members Lewis, Finnila, Kulchin, Hall and Packard
NOES: None
ABSENT: None
ATTEST:
RRAINE M. WOOD, Secretary
(SEAL)
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DATE: September 28,2004
TO: CITY MANAGER
FROM: Administrative Services Director
Public Works Director
RE: DESALINATION PROJECT AGREEMENT WITH POSEIDON RESOURCES
This report is being submitted to the City Manager along with a draft Water Purchase
Agreement and Development Agreement Term Sheet for review, and if appropriate,
Water Board consideration at a future meeting. Staff has concluded its negotiations with
Poseidon Resources, the proponents of a seawater desalination plant in Carlsbad, on the
attached agreements and is prepared to make a recommendation to the Water Board.
Recommendation
Staff has provided the Water Board with draft copies of the Water Purchase Agreement
and staff report to facilitate the Council’s deliberation on this complex issue.
Based on the current state of the Water Purchase Agreement, staff recommends that the
Water Board consider the following actions:
1.
2.
3.
4.
Review the draft Water Purchase Agreement and refer comments and suggestions
for revisions to staff for further negotiation with Poseidon.
Approve the Water Purchase Agreement subject to any changes identified by the
Water Board.
Defer action on the Water Purchase Agreement until the Board Subcommittee and
staff have completed meetings with the County Water Authority representatives.
Accept the report and take no action.
Background
In June 2000, Poseidon Resources came before the Water Board asking for the Board’s
approval and endorsement of a study to be conducted by Poseidon and its consultants on
the feasibility of constructing a seawater desalination plant in Carlsbad. The Water
Board approved Poseidon’s request (Resolution 1093,6/27/00), an action that set into
motion the process that would unfold in the following four years.
In July 2001, Poseidon Resources submitted a completed feasibility study to the Water
Board. The findings showed that a seawater desalination plant producing up to 50
million gallons per day (MGD) could be feasibly constructed on land adjacent to the
Encina Power Plant where the power plant’s seawater intake and heated water outfall
could be leveraged to support the desalination process. The study also proposed a
distribution system that would serve Carlsbad, some surrounding communities, and the
San Diego County Water Authority.
Although the proponent’s study showed that a desalination plant was feasible, the
Carlsbad Municipal Water District (CMWD) Board felt that an additional, independent
study would be appropriate. In addition, since the proposed desalination plant would
produce water in excess of Carlsbad’s needs, it was necessary to include other water
agencies in the project. In January 2002, the San Diego County Water Authority
(SDCWA) stepped forward to take the lead on conducting an independent review of the
feasibility of a seawater desalination plant with Carlsbad and Oceanside participating in
and funding a portion of the study.
The firms of Parsons Brinckerhoff Quade and Douglas, R. W. Beck, and Tetra Tech were
retained to produce an independent review of the Poseidon study. This report, prepared
in draft in early 2002 and issued in final form in June 2003, concluded that the Poseidon
business model would produce water with an average per-acre-foot price that was 15% to
38% more expensive than a similar project constructed by the SDCWA.
This information caused the SDCWA to reconsider its business relationship with
Poseidon, and its approach to developing a seawater desalination plant on the Cabrillo
site. Negotiations between SDCWA and Poseidon came to a halt in January 2004 when
differences over the confidentiality of information provided by Poseidon to SDCWA
proved to be irreconcilable. In addition, the completion of negotiations on the Imperial
Irrigation District deal and the Quantification Settlement Agreement (QSA) reduced
SDCWA’s sense of urgency for the development of seawater desalination as an alternate
source of potable water.
SDCWA’s board concluded that it would be in the region’s best interest to allow
Carlsbad and Poseidon to work on developing a local project rather than to continue
direct negotiations with Poseidon. SDCWA also halted negotiations with Carlsbad on an
MOU that was intended to define the relationship between the two agencies if SDCWA
were to develop a desalination plant on the Encina site. SDCWA intended to use the
break in negotiations to complete the water master plan and program EIR, rate analysis,
and to reconsider the proper timing for investment in seawater desalination.
During this period, Carlsbad continued its efforts to negotiate a Water Purchase
Agreement (WPA) and development agreement term sheet with Poseidon. Carlsbad has
also remained interested in completing work on the MOU with SDCWA when the
agency’s board determines that it is appropriate to reopen discussions. (On August 12,
2004, the SDCWA Board held a special meeting to consider reopening negotiations with
both Poseidon and Carlsbad. During that meeting the Board unanimously approved a
staff recommendation that talks be reopened with both Poseidon and Carlsbad, and that
staff be allowed to proceed with the work on the SDCWA EIR process. Carlsbad’s goal
is to complete negotiations with SDCWA prior to the September 28,2004 CMWD Board
meeting.)
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Staff recently completed negotiations with Poseidon on the WPA and is prepared to
present the agreement to the Water Board for consideration. Although the agreement has
some shortcomings, it meets many of the Water Board’s goals, and provides the ability to
purchase water directly from the privately owned desalination plant.
Water Board Goals
Carlsbad’s role in the negotiations process with both SDCWA and Poseidon has been
guided by a number of goals adopted by the Water Board on June 11,2002. These goals
focused on the public policy and benefit issues summarized below. (See attachment:
Principles for Desalination Negotiations, June 1 1 , 2002 for the complete text of the
principles):
0 Public improvement projects, land use and Redevelopment Area issues
o Development of the desalination project should provide resources to
support the following: . Completion of a number of beach and lagoon related public
projects in the Agua Hedionda area including restrooms, public
access sites, parking and park improvements.
Transportation system and traffic circulation system improvements
along Carlsbad Blvd.
o The expanded use of the power plant property should produce economic
benefits for Carlsbad and the South Carlsbad Coastal Redevelopment Area
(SCCRA).
o The development of a desalination plant should not interfere with the
eventual relocation of the Encina power plant.
Water Quality
o Water quality for Carlsbad residents should be improved through the use
of desalinated water.
Water Quantity
o Carlsbad should be able to purchase enough water from the desalination
plant to serve all local needs.
Water Reliability
o The development of a desalination plant in Carlsbad should provide a
benefit to local residents in the form of improved water reliability in the
event of a drought.
0 Water Price
o The purchase price for desalinated water should be protected from power
price fluctuations.
o The local water customers should pay no more for desalinated water than
is currently paid for SDCWA imported water.
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The resulting focus on public benefit, public improvements, quality, quantity, reliability,
and price has guided the numerous discussions with both SDCWA and Poseidon.
Tampa Bay
While Carlsbad worked with SDCWA and Poseidon, Tampa Bay Water was being the
pioneer in the American desalination business. Pressured by a court order to reduce
pumping of ground water, Tampa Bay proposed a 28.75 MGD seawater desalination
plant as the solution to their troubles. The plant was under construction during the time
that Poseidon and SDCWA were completing the various feasibility studies for the project
on the Encina site.
In summary, Poseidon had proposed a project to Tampa Bay that would allow the plant to
be privately designed, built and operated, with Tampa Bay having the right to purchase
the project at any time. Although there are various interpretations of where the project
went wrong, the undisputed facts show that in 2002, when Tampa Bay perceived that the
project was in financial trouble, Tampa Bay exercised its option to purchase the plant
well before construction was completed.
Following acquisition, the project was completed and began operating in early 2003.
However, operations have been complicated by a number of technical problems with the
project, the most public of which has been a clogging of the pre-treatment stage filters.
Various reports indicate that the plant has as many as 37 defects that must be corrected
before the plant can operate at full capacity.
Tampa Bay sought proposals from a list of pre-qualified firms to redesign and repair the
various problems. These proposals will be considered at a meeting on August 30,2004,
at which time Tampa Bay expects to select a contractor and move forward on system
repairs. A legal battle is also underway between Tampa Bay and Hydronautics, the
supplier of the filters, over the calling of a performance bond posted by Hydronautics that
guaranteed the completion and proper functioning of the project and/or the filters,
depending on which party is characterizing the purpose of the original bond.
Although Tampa Bay and Poseidon differ on the responsibility for the various defects,
there is no argument that defects exist. According to Poseidon, when Tampa Bay Water
purchased the project, Tampa Bay Water did not release Poseidon from any future
litigation related to its involvement in the Project. However, it should be noted that as of
the date of this report there was no litigation between Tampa Bay and Poseidon.
It is not the intent of this report to analyze the many technical problems with the project
or to place blame. However, it is important to note that the only sizeable seawater
desalination plant in this country is experiencing difficulties, and to understand the
amount of risk that this suggests there is in the development of a fully functional
desalination plant of the size proposed for Carlsbad. This recognition of risk has been a
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significant factor guiding the staff’s negotiations with both SDCWA and Poseidon during
the past several years.
Two Paths To Desalination
As suggested by the introduction to this report, there are two paths that could lead to the
development of a desalination plant in Carlsbad. One would be a public project owned
and operated by SDCWA, developed through the normal public works process of design,
bidding, government oversight, distribution, and pricing. The other would be a private
project developed by Poseidon, 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.
The recognition that a desalination project in Carlsbad has two possible futures has
placed Carlsbad in the difficult position of having to negotiate the best possible
agreements with both of the project proponents, while acknowledging that only one of the
two projects can be built. It has been staffs goal to present the Water Board with two
agreements, an MOU with SDCWA and a Water Purchase Agreement with Poseidon to
consider together thereby providing the opportunity to consider both possible futures side
by side.
Public Project - SDC WA
The SDCWA had initially proposed a public desalination project that would be developed
in cooperation with Poseidon in an arrangement not unlike the original Tampa Bay
project.
During the process of clarifying their plans, SDCWA concluded that the construction of a
50 to 100 MGD desalination project would require an amendment to the region’s Water
Master Plan and a program level Environmental Impact Report (EIR). Both the Water
Master Plan update and the required environmental review were completed in Early
2004.
The SDCWA Board also concluded that the region’s best chance to create a new water
source was tied to the development of desalination plants along the coast at the various
power plants from Chula Vista to San Clemente. Once the Water Master Plan was
complete, along with the necessary program level environmental review, SDCWA began
to move forward with the project level environmental review of the specific desalination
proposal.
During 2003 SDCWA hired an EIR consultant to review the impacts of a desalination
project. This review stalled while SDCWA considered how to gain access to the Encina
power plant site over the objections of Cabrillo Power, the owners of the property.
SDCWA must make a final decision on the development of a desalination plant in the 50
to 100 MGD range by 2006, or SDCWA will be forced to undertake the construction of
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Pipeline 6, a water line that parallels existing water lines connected to the Metropolitan
Water District (MWD) system. How SDCWA will find water to fill Pipeline 6 remains
an open question at this point. The pipeline project currently proposes to provide
additional transportation capacity, but no new water for the region.
SDCWA halted negotiations with Poseidon in early 2004 due to concerns over
Poseidon’s business model and confidentiality issues raised by Poseidon. Since the
cessation of talks with Poseidon, SDCWA has focused its energy on the completion of
the Water Master Plan, related water rate studies, the program level EIR, and beginning
work on the project level EIR for the SDCWA-owned desalination plant.
If SDCWA’s actions are followed to their logical conclusion, the result will be a publicly
owned desalination plant on the Encina power plant site in Carlsbad. The development
of this project has long-range implications for the City, CMWD, and the SCCRA.
Therefore, the staff has continued its efforts to negotiate an MOU with SDCWA
addressing the Council’ s/Water Board‘s numerous goals.
SDCWA’s decision to pause negotiations with Carlsbad early this year eliminated the
possibility of reaching agreement on an MOU at this time. However, at a special meeting
of the SDCWA Board on August 12,2004, the Boad unanimously approved reopening
negotiations with both Poseidon and Carlsbad. Staff will report on the progress of these
talks at the CMWD Board’s September 28,2004 meeting.
Private Project - Poseidon
Poseidon’s business model is based on private ownership and financing of the
desalination facility with public agencies purchasing the water from the plant for
distribution to the end users.
Poseidon and Cabrillo Power have entered into a lease that gives Poseidon the right to
develop a project on the power plant site. Cabrillo has also provided Poseidon with
access to heated intake water and the power plant’s hot water outfall for brine discharge.
Cabrillo may also be the eventual operator of the desalination plant.
In October 2003, Poseidon and Cabrillo jointly submitted a completed application for a
Precise Development Plan (PDP) covering the Encina power plant and the desalination
project to the Planning Department. This plan is currently undergoing review with
completion scheduled for early to mid 2005. The EIR related to the PDP is underway.
The draft EIR should be available for public review in the late fall, with submission to
Council for certification scheduled to coincide with the submission of the PDP in early to
mid 2005.
Poseidon has been running a test desalination facility at the power plant for
approximately two years, producing up to 104 gallons per minute when operating at
capacity. The City has approved one extension in the operating permit for the test facility
extending its life through October 2004. An application to extend the operation of the
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facility through October 2005 is being processed through the Planning Department at this
time.
If Poseidon’s actions are followed to their logical conclusion the result will be a privately
owned desalination plant on the Encina power plant site in Carlsbad. The development
of this project has long-range implications for the City, CMWD, and the SCCRA.
Therefore, the staff has continued its efforts to negotiate a WPA with Poseidon
addressing the Council’s/Water Board’s numerous goals.
Staff has concluded its negotiations with Poseidon on the WPA and is prepared to submit
the draft agreement to the Water Board for review and consideration.
Water Purchase Agreement
The WPA is an extensive document covering the terms and conditions under which
Poseidon agrees to sell, and Carlsbad agrees to buy, water produced by the desalination
plant. The following section reviews the key points of the agreement as they relate to the
Council’s/Water Board’s goals, and a few additional provisions of the agreement that are
necessary to protect the City’s/District’s interests.
Public Improvement Projects, Land Use and Redevelopment Area Issues
The project as proposed by Poseidon will be owned by a private entity subject to the
payment of property taxes under existing laws of the State of California. Because the
project is located within the SCCRA, approximately 80% of the property taxes paid by
the project will be received by the SCCRA to be used to fund public projects within and
around the redevelopment area. For example, if the project were to be valued at $250
million, the annual property tax revenue to the SCCRA would be approximately $2
million.
A continuing concern has been what happens to this revenue stream if the private project
is subsequently purchased by a public entity. Under normal circumstances, the tax
revenue from the project would end, even though the impacts of the project would
remain. Section 3.2.4 of the WPA provides one possible solution to this problem by
requiring that if the tax revenue from the project were to cease due to the purchase of the
project by a tax exempt agency, the Water District would be able to reduce the base price
of water purchased by the plant by an amount equal to the taxes that are no longer being
paid.
The issue of property tax payments is further addressed in the Development Agreement
Term Sheet discussed later in this report.
Quality
The WPA addresses two areas of concern relative to Water Quality. Section 7 deals with
the effects of desalinated water on the water delivery systems fiom the plant to the
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consumers tap. Section 8 covers compliance of the product water with all applicable
drinking water standards including consumer acceptability.
It is the goal of each section to provide extensive studies during the plant design process
to ensure that the product water is fully acceptable for consumption with no damaging
effects on the delivery systems.
Should problems be encountered during operation of the plant, the parties will meet to
develop a strategy to bring the water into an acceptable state. In the eventuality that
agreement cannot be reached in a timely manner, it may be necessary for the District to
discontinue delivery of desalinated water to portions or all of the District’s customers.
Replacement water would be obtained from SDCWA. The District would not pay for
desalinated water not delivered.
Section 7 of the agreement sets up a system to test the effects of water produced by the
existing pilot plant on a system of pipes and fittings that mimic the District’s distribution
system and a separate pipe rack that mimics the typical household piping systems. These
tests will be monitored to evaluate any adverse effects on these systems and to develop
mitigation measures if required.
Section 7 also provides for the development of a monitoring program to monitor impacts
on the delivery systems during the actual operation of the plant. This system would
provide early warning of any accelerated deterioration of the District facilities due to the
introduction of the product water. If accelerated deterioration occurs, the District would
have to pursue compensation for the damage through appropriate legal actions.
Section 8 of the WPA deals with the product Water Quality issues. Water produced by
the plant must meet both of the following standards (Section 8.1):
0
0
All current and future drinking water standards and action levels as established by
the California Department of Health Services.
Water Quality specifications further defined in Section 8.2 and Schedule 8.2 of
the WPA. These standards have been developed by Carlsbad in consultation with
an independent water quality expert.
All applicable standards have been agreed upon except for Boron levels. Studies indicate
that desalinated water can contain elevated levels of Boron that could have adverse
impacts on various plant species. Some evidence exists that elevated levels of Boron
could pose health hazards. Further studies will be required to finalize the standards
defining the allowable level of Boron. Section 2 contains a provision that makes the
agreement dependent on resolution of the Boron Standard.
The district is not obligated to accept or pay for water that does not meet the quality
standards defined in the agreement (Section 8.4).
8 IS
Quantity
The proposed desalination plant will produce a minimum of 25 MGD. Carlsbad’s daily
demand for water ranges from approximately 10 MGD to 25 MGD depending on the
season. The WPA anticipates that Carlsbad would purchase 100% of its daily demand
from the desalination plant (Section 1.2).
Carlsbad has a priority on water produced by the plant with the exception that should
there be a shortfall in production, during the first five days of the shortfall, Carlsbad’s
delivery may be reduced by the amount of the shortfall. After five days, Carlsbad would
receive the full amount of its water demand while the effects of the shortfall are then
divided among the other customers receiving water from the desalination plant (Section
10.1). If the shortfall continues to exist beyond ten days, all water customers will share
in the shortfall.
This allocation system has been developed on the assumption that Carlsbad will be able
to draw sufficient water from Maerkle Reservoir to backfill a shortfall lasting five days or
less. In addition, the WPA anticipates that Carlsbad will have an agreement with
SDCWA that allows Carlsbad to draw upon the existing imported water system under
certain circumstances (Section 13.2.10).
Reliability
The agreement is designed to provide a reliable water supply for Carlsbad for the period
of 30 years, with two possible 30-year extensions.
During the contract term, if the desalination plant delivers between 96% and 87.5% of
Carlsbad’s daily demand over a defined period, Poseidon will pay Carlsbad liquidated
damages as necessary to cover the cost of procuring water fiom other sources (Section
9.7).
The amount of Liquidated Damages paid by Poseidon would be equal to the difference in
price Carlsbad was required to pay to obtain a substitute supply of water and the price
that would have been paid to Poseidon. If the cost of the substitute water supply is equal
to or less than the cost of desalinated water, no damages would be paid. However, if the
shortfall extends beyond six months, the agreement provides that Poseidon pay Carlsbad
an additional $50 per acre foot in liquidated damages in compensation for having to
procure long term backup sources of water.
If the plant delivers 87.5% or less of Carlsbad’s daily demand for a defined period,
Poseidon is considered to be in default of the agreement. At this point the default
provisions of the agreement come into play (Section 14).
The actual delivery regime remains undefined at this time; however, the general rules for
determining a failure to deliver sufficient water have been included in the WPA.
9 16
95.99% to 87.5%
87.49% or lower
1 Liquidated damages apply (Section 9.7)
/ Default condition exists (Section 14.1.1 \
I * Water Year is defined as any consecutive 12 month period (Section 2.4)
During periods when less than 100% of Carlsbad’s demand is being delivered by the
desalination plant, Carlsbad will need to rely on water stored in Maerkle Reservoir, or on
supplemental deliveries of water from SDCWA. This reliance on SDCWA requires an
agreement between SDCWA and Carlsbad that has not yet been drafted.
In the event of default (Section 14.1. l), Carlsbad may seek any remedy available under
law (Section 14.2.1), or in lieu of pursuing any remedy under law, Carlsbad may
terminate the agreement and purchase the project. The purchase option is described later
in this report.
Price
Of particular concern to both parties has been the definition of price. The guiding
principal for Carlsbad’s staff in negotiating this agreement has been the Water Board’s
direction that Carlsbad residents should pay no more for desalinated water than they
would otherwise pay for water delivered from SDCWA (Section 3). The pricing plan
that is currently reflected in the draft WPA achieves the majority of Carlsbad’s goals with
regard to the cost of water (Section 3 and Schedule 3).
Although staff has invested significant time in developing a pricing plan intended to be as
simple as possible, every system considered by the team involved some level of
complexity. The plan included in the draft WPA hinges on several factors:
1.
2.
3.
4.
By purchasing water from the desalination project instead of SDCWA Carlsbad
will avoid certain direct water costs. This becomes the “Avoided Charges’’ value
used in the pricing plan (Schedule 3, paragraph 2).
Poseidon has set a base price for desalinated water at $861 per acre-foot (as of the
date of the agreement) plus an undefined delivery charge (Section 3.1.1 and
3.2.3). This base price would be inflated annually using two factors: the CPI
applied to 70% of the base price, and an energy inflator applied to 30% of the
base price. This becomes the “Base Price” value used in the pricing plan.
The WPA is contingent on Carlsbad receiving the $250 rebate from MWD, or
other subsidies equal to $250 per acre-foot. This rebate amount would be added
to the “Avoided Charges” value to determine the amount payable to Poseidon.
A “tracking account” is created whenever the avoided costs (plus $250 per acre-
foot) are lower than the base price.
Generally, Carlsbad will pay the 1) avoided water charges, 2) the base price, or 3) the
base price plus one half of the difference between the base price and the avoided cost.
10
During periods when the Avoided Charges are lower than the base price, the difference
would be collected in a “tracking ~ccou~~”. Then in times when the base price is lower
than the Avoided Charges, Poseidon would be able to recover the balance of the tracking
account as long as the price for water did not exceed the amount of the Avoided Charges.
Mer the tracking account is exhausted, and as long as the base price remains lower than
the Avoided Charges, Carlsbad would pay a price for water that splits the difference
between the Base Price and Avoided Charges.
This formula is easier to understand using a graphic example.
Proposed Pricing Plan
balance accudates in the tracking account. I
Under this pricing plan, Carlsbad will pay an amount for water that is equal to, or less
than,’ the amount that would have been paid to the SDCWA for an equal amount of water.
Since the WPA is based on a Take-If-Delivered concept (Section 3.4) where Carlsbad
only pays for water that is actually delivered by Poseidon, there are no payments to
Poseidon that are not directly tied to the delivery of water.
The undefined delivery charge referred to in Section 3.1.1 and 3.2.3 is of concern to sta.
However, since the base price only becomes important when the Avoided cost exceeds
the base price, this may not be a significant issue.
The WPA includes other sections that deal with price. Staff is concerned about the
precedent set in Section 3.5.1 where fianchise fees, taxes or other City or District charges
affecting the desalination plant could become the obligation of the District to pay. This
would apply in instances where the fee tax or other charge is deemed to be applicable
only to the desalination plant and not to other businesses in Carlsbad. The language
shown in the current draft agreement represents a compromise that appears to be
acceptable to both parties.
11
Poseidon has been adamant during the negotiations process that a dependable source of
revenue is necessary for the project to qualify for debt financing. The proposed pricing
plan provides a revenue stream that is not sufficient to allow for 100% financing for the
project. Although no specifics have been provided, Poseidon has stated that under this
pricing plan a significant portion of the project cost will be funded through equity
investments.
Conditions
The agreement includes a number of terms and conditions that must be satisfied before
the agreement becomes binding on the parties. These conditions include the following:
1. CEQA
a. The WPA acknowledges that the District cannot commit to purchase any
water until all California Environmental Quality Act (CEQA) processes
are complete (Recital E, Section 13.1.1, and 13.2.1).
b. If the CEQA process has not been completed within 24 months of the date
of the WPA, either party may terminate the agreement (Section 2.3.1).
This section applies specifically to the certification of the EIR by
Carlsbad.
2. Water Rates - If Poseidon has determined that the water rates set by the pricing
section of the agreement are insufficient to implement the project; Poseidon may
terminate the agreement (Section 2.3.2).
3. Applicable Laws and Permits - The agreement requires that Poseidon or its
subcontractors must have complied with all applicable laws, and received all
necessary approvals and permits (Section 13.1.2, 13.1.3, 13.2.2, and 13.2.4)
during the construction of this project.
4. Sale of Remaining Output - If Poseidon has not entered into agreements to sell the
remaining output of the project, either party may terminate the agreement (section
13.1.5, 13.1.6, 13.2.7, and 2.3.1). The WPA anticipates that Poseidon will
construct a desalination plant providing 25 MGD to 50 MGD. Carlsbad’s demand
will vary from approximately 10 MGD to 25MGD leaving Poseidon with the need
to dispose of a variable supply of up to 40 MGD.
5. Delivery Points - If the parties have not agreed on delivery points within 24
months of the WPA date, either party may terminate the agreement (Section
13.1.7, 13.2.8, and 2.3.1).
6. Delivery Regime - If the parties have not determined an acceptable delivery
regime within 24 months of the WPA date, either party may terminate the
agreement (Section 13.1.7, 13.2.8, and 2.3.1).
12
7.
8.
9.
Delivery Charge - The parties must agree on a mutually acceptable delivery
charge (Section 13.1.7, 13.2.8,2.3.1).
Monitoring and Testing - The parties must develop a mutually acceptable system
testing and monitoring protocol within 6 months, and system tests must have been
successfully completed within 36 months. (Section 7, 13.1.7, 13.2.8, 13.2.3, and
2.3.1).
Water QuaEity - The parties must agree on the acceptable level of Boron allowed
in the product water (Section 2.3.1).
10. Subsidy - If Carlsbad has not received the $250 per acre-foot MWD subsidy (or an
equivalent subsidy, from other sources) the agreement may be terminated (Section
13.2.6).
1 1. Development Agreement - The agreement is conditioned on the parties entering
into a Development Agreement (Section 13.2.9, and Exhibit 13.2.9). A proposed
term sheet is attached to the agreement.
12. Backup Water SuppZy - The agreement is conditioned on Carlsbad receiving an
acknowledgement from SDCWA that Carlsbad is eligible to receive backup water
when needed (Section 13.2.10).
13. CabriEZo Consent - Within 24 months, Cabrillo Power must have provided the
consent to the agreement terms related to the District’s ability to exercise its rights
under the agreement (Section 2.3.1)
Other Signif cant Terms
1.
2.
3.
Purchase Option - The Water District has the right, but not the obligation, to
purchase the desalination plant at the end of the agreement term (Section 2.1 S).
The methodology for establishing the purchase price is included in the agreement.
Right of First Offer - In the event Poseidon desires to transfer ownership of the
property to another entity, Carlsbad shall be given the opportunity to make an
offer to purchase the plant prior to the transfer. If Carlsbad’s offer is rejected,
Poseidon cannot transfer the project to another entity on more favorable terms
than were included in Carlsbad’s offer (Section 18).
Default Purchase Option - In the event of default, Carlsbad has the right to
purchase the project. Carlsbad also has the right to operate the project and to
deduct the cost of operation from any amount that would otherwise be payable for
water delivered to Carlsbad (Section 14.2.2 and 14.2.3).
13
4. Assignment By Carlsbad - Although Carlsbad has the right to assign its rights
under the agreement to other governmental entities, certain terms and conditions
of the agreement may be modified by Poseidon upon assignment (Section 2 1.16).
Development Agreement Term Sheet
An important component of the WPA is a draft Development Agreement Term Sheet.
The purpose of the term sheet is to define the terms and conditions that would be part of a
future development agreement between the City of Carlsbad and Poseidon. Carlsbad
cannot adopt a development agreement until the EIR process is completed, so the term
sheet provides the only available vehicle for defining the material terms of the resulting
agreement at this time (Section 13.2.9)
The key components of the development agreement would be a freezing in place of the
development fees, General Plan, zoning, PDP (once approved by Council) and the rules
that would apply to the project.
It also would solidify the obligation to pay the statutory property tax, or an equivalent
amount in lieu of taxes, to the City, District and Redevelopment agency, regardless of
who might own the project in the future.
The draft development agreement term sheet includes language that would exempt the
project from any future water production taxes or franchise fees.
And, finally, the proposed term sheet includes a section that would exempt the project
from paying for the use of pubic rights of way for its distribution system.
Other Considerations
Coastal Commission Review
One of the biggest hurdles a private desalination project will face is the review by the
California Coastal Commission. In March 2004 the Coastal Commission issued a report
titled Seawater Desalination and the California Coastal Act that laid out in great detail
the Commission’s concerns with regard to privately owned desalination facilities.
Council received an informal update on the contents of the Coastal Commission’s report
earlier this year.
Risk
The WPA has been drafted to reduce as many risks as possible related to the shifting of
Carlsbad full water supply from SDCWA to a privately owned project. Public benefit,
quality, quantity, reliability and price, as defined by the Council’sNater Board’s goals,
have been the guiding principles in this negotiation.
14
However, significant risks remain. Quality concerns continue to be at the heart of the
discussions between Poseidon and staff. Poseidon has been very clear that they are
prepared to be responsible for the quality of the water entering Carlsbad’s water
distribution system. But Poseidon is not eager to be held responsible for the quality of
the water delivered to the end user (at the tap). Carlsbad’s role in protecting the public
health extends to both the supply side and the consumer side of the system.
Because Carlsbad cannot deliver water at the tap that does not meet state drinking water
standards, if a problem develops that Carlsbad believes is connected in some way to the
delivery of desalinated seawater through the municipal system, the WPA allows Carlsbad
to cease delivery of water from the desalination plant and return to the SDCWA system
until the problem is corrected.
Poseidon and Carlsbad differed on Carlsbad’s obligation to pay for water that was
rejected by Carlsbad under the above scenario. Language has been inserted in the
agreement under section 8.4 to deal with this situation, however it is possible that the
rejection of water under this section could lead to litigation.
Another risk is one of larger consequence to the region. Carlsbad’s interest in the
desalination plant is to obtain a local, reliable source of water. If the plant is successful,
all parties benefit - Carlsbad gains a high quality source of local water, and the region
gains a new source of water. If the plant is not successful, Carlsbad will simply return to
the SDCWA system for delivery of water.
But the region has a different problem. Because it is likely that construction of the plant
would not commence until well into 2006, SDCWA is placed in the position of having to
decide if it is going to endorse a private desalination project as a source of new water for
the region, or if they will pursue the construction of pipeline 6 (although the water to fill
pipeline 6 is currently not identified) as its alternate strategy before it is known whether
Poseidon can deliver a functioning plant of the size needed to serve regional needs. The
risk to SDCWA is that if it endorses a private venture only to later find that it has not
been successful, SDCWA will be several years behind schedule in developing alternative
new water sources for the county.
Schedule
Staff has provided the Water Board with a draft WPA and staff report in order to allow
time to review this complex issue. Under the current schedule, staff intends to bring this
item before the Water Board at its September 28 meeting.
If the Water Board chooses to delay action, the item would return at a time convenient to
the Water Board.
Attachments :
Water Purchase Agreement
Principles for Desalination Negotiations, June 1 1,2002
15 AJ-
PRINCIPLES FOR DESALINATION NEGOTIATIONS
JUNE 11,2002
e Redevelop Encina Power Plant to maximize its best public and private uses.
Maximize beach and lagoon access for the public.
Maximize open space and recreational opportunities for the public.
Improved water reliability and quality in both .normal and drought periods at CWA
water rates. 5
Desalination facility protected from power market cost fluctuations.
0 Accrue a positive economic benefit from the increased industrial development of
the coastal corridor.
The Redevelopment Agency shall cooperate with any other public agency
proposing a desalination project within its boundary so that any possible loss in
anticipated tax increment is reduced or eliminated.
0 The projects of the Redevelopment Agency shall not be prejudiced or
compromised as 5 consequence of a desalination project.
0 A desalination project shall provide water reliability so that the City’s annual base need,
not including recycled water, is met which shall be subject to local control and
appropriation.
Drought allocation rules established by the County Water Authority as to the remainder
amounts from a desalination project shall be applied equally to all other member
agencies.
a3
DRAFT
August1 8,2004
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO
CARLSBAD MUNICIPAL, WATER DISTRICT
c/o City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Attn: City Attorney
Exempt fiom recording fees pursuant to
California Government Code Section 27383
1760968 vl: 1 lQRSl l!.DOC
WATER PURCHASE AGREEMENT
Entered Into
By and Between
The Carlsbad Municipal Water District,
And
Poseidon Resources (Channelside) LLC
September 28,2004
DRAFT
August1 8. 2004 .
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 .................................................................................................................... 9
4.1 Engineering, Procurement and Construction ............................................................... 9
4.2 Testing ......................................................................................................................... 9
5 . LEGAL ENTITLEMENTS ....................................................................................................... 9
6 . PROJECT OPERATION AND MAINTENANCE ................................................................. 10
6.1 Continuous Operation ................................................................................................ 10
6.2 Operations, Maintenance, Management and Repair .................................................. 10
6.3 Operation and Maintenance Manual .......................................................................... 10
7 . DAMAGE TO THE PROJECT, DISTRIBUTION SYSTEM TECHNICAL STUDIES ....... 11
7.1 Damage to the Project ................................................................................................ 11
7.2 Distribution System Technical Studies ...................................................................... 11
8 . WATER QUALITY ................................................................................................................ 13
8.1 Water Quality Issues .................................................................................................. 13
8.2 Quality Standards, Compliance with Law, Pressure Parameters and Water
Quality Standards ...................................................................................................... 14
1
DRAFT
August1 8. 2004
8.3 Finalization of Water Quality Specification for Boron ............................................. 14
8.4 District's Non-Acceptance ......................................................................................... 14
8.5 Compliance with Regulations on Water Quality ....................................................... 14
9 . DELIVERY OF WATER ........................................................................................................ 15
9.1 Delivery of Water ...................................................................................................... 15
9.2 Delivery Points .......................................................................................................... 15
9.4 Conveyance Losses .................................................................................................... 16
9.6 Reports ....................................................................................................................... 17
9.3 Delivery Schedule ...................................................................................................... 16
9.5 Meters and Records ................................................................................................... 16
9.7 Liquidated Damages for Failure to Deliver ............................................................... 17
9.8 District Failure to Accept Product Water .................................................................. 17
10 . PRIORITY FOR PROJECT WATER, PRICE REDUCTION .............................................. 18
10.1 Priority ..................................................................................................................... 18
10.2 Price Reduction ........................................................................................................ 18
1 1 . USE OF MAERKLE RESERVOIR ...................................................................................... 18
1 1.1 Maerkle Lease .......................................................................................................... 18
1 1.2 Appurtenant Facilities .............................................................................................. 19
1 1.3 District's Obligation ................................................................................................. 19
1 1.4 Principles for Joint Use ............................................................................................ 19
12 . INSURANCE. ....................................................................................................................... 19
...
..
12.1 Form ......................................................................................................................... 20
12.2 District's Right to Procure ........................................................................................ 20
12.3 Deductibles, Excess Claims. .................................................................................... 20
12.4 Additional Insureds .................................................................................................. 20
12.5 Waiver of Subrogation ............................................................................................. 20
12.6 Statement of Insurance ............................................................................................ 21
12.7 Primary Insurance for Additional Insureds .............................................................. 21
13 . CONDITIONS, ADDITIONAL ASSISTANCE ................................................................... 21
13.1 Poseidon's Conditions .............................................................................................. 21
13.2 District's Conditions ................................................................................................ 22
.. 11
DRAFT
August 1 8. 2004
13.3 Additional Assistance .............................................................................................. 23
14 . DEFAULTS AND REMEDIES ............................................................................................ 23
14.1 Default by Poseidon ................................................................................................. 23
14.2 District's Remedies .................................................................................................. 24
14.3 Default by District ................................................................................................... 25
14.4 Poseidon's Remedies ................................................................................................ 26
14.5 Damages Recoverable ............................................................................................. 26
1 5.1 Organization ............................................................................................................ 26
1 5.2 Authorization ........................................................................................................... 26
1 5.3 Enforceability .......................................................................................................... 26
15.4 Governmental Consents ........................................................................................... 26
15.5 No Litigation ............................................................................................................ 26
15.6 No Conflict .............................................................................................................. 27
1 6.1 Organization ............................................................................................................ 27
16.2 Authorization ........................................................................................................... 27
16.3 Enforceability .......................................................................................................... 27
16.4 Governmental Consents ........................................................................................... 27
16.5 No Litigation ............................................................................................................ 27
16.6 No Conflict .............................................................................................................. 27
17 FORCE MAJEURE ................................................................................................................ 27
17.2 Force Majeure Examples ......................................................................................... 28
1 7.4 Excused Performance .............................................................................................. 28
18 . RIGHT OF FIRST OFFER .................................................................................................... 29
15 . REPRESENTATIONS AND WARRANTIES OF THE DISTRICT .................................... 26
...
16 . REPRESENTATIONS AND WARRANTIES OF POSEIDON ............................................ 27
..
...
17.1 Defined .................................................................................................................... 27
17.3 Events Not Deemed Force Majeure ......................................................................... 28
.. 18.1 Restriction on Transfer ............................................................................................ 29
18.2 Right of First Offer .................................................................................................. 29
19 . DISPUTE RESOLUTION ..................................................................................................... 29
20 . INDEMNITY ......................................................................................................................... 30
... 27 ill
DRAFT
Augustl8. 2004
.. 20.1 District's Indemnity .................................................................................................. 30
20.2 Poseidon's Indemnity ............................................................................................... 30
20.3 Indemnification Procedures ..................................................................................... 31
2 1 . MISCELLANEOUS. ............................................................................................................. 31
21.1 Further Actions ....................................................................................................... 32
2 1.2 Amendment ............................................................................................................ 32
2 1.3 Entire Agreement .................................................................................................... 32
2 1.4 Notices .................................................................................................................... 32
2 1.5 Controlling Law ...................................................................................................... 33
2 1.6 Headings ................................................................................................................. 33
2 1.7 Cumulative Rights; Waiver .................................................................................... 33
21.8 Liberal Construction .............................................................................................. 33
2 1.9 Severability ............................................................................................................ 33
21.10 Good Faith and Fair Dealing ................................................................................. 34
21.12 Execution in Counterparts; Facsimile Signatures .................................................. 34
2 1 . 1 1 No Third Party Beneficiaries ................................................................................. 34
21.13 Time ofthe Essence ............................................................................................... 34
2 1 . 14 Authority ................................................................................................................ 34
2 1 1 5 Number. Gender .................................................................................................... 34
2 1 . 16 Assignment ............................................................................................................ 34
2 1 . 1 8 Agreement Not a Discretionary Approval ............................................................. 36
21.19 Financing the Project ............................................................................................. 36
2 1.2 1 Memorandum of Option ....................................................................................... 37
.
2 1.17 Relationship ........................................................................................................... 35
21.20 Project and Site Devoted to Public Use ................................................................ 36
21.22 Security ................................................................................................................. 37
Schedule 3
Schedule 8.2
Schedule 12
Exhibit 13.2.9
Purchase Price
Quality Standards
Insurance
Development Agreement Term Sheet
iv
DRAFT
August1 8. 2004
OF TIEFTNETI TEW
................................................................................................................ 18.2.2 AccentedOffer ......................................................................................................................... 18.2.2 ..................................................................................................................... 3.5
Addrtlonal ...................................................................................................................... 12
Paym.eni .................................................................................................... Schedule 3 (4)
Ageemmi .......................................................................................................................... Preamble ........................................................................................................................... 4.1
apP.atc 21.18 ................................................................................................................... 9.2 ................................................................................................ 9.2
AuhnQ ............................................................................................................... Schedule 3 (2) (b) ............................................................................................. Schedule 3 (2) (a)
Ihid&e .................................................................................................................................. 3.1.1
€hmFqgl ................................................................................................................................. 8.1
c,Eoa ................................................................................................................................. Recital E
ChangeTn~,aw ........................................................................................................................... 3.2.2
CiQ ..................................................................................................................................... Recital B ................................................................................................................ 4.2 ......................................................................................................... 4.2
Clommittee ..................................................................................................................................... 19
PertnMhdk ................................................................................................... 2.3.4
r Plumhulrr Test .......................................................................................................... 7.2.2 ........................................................................................................ 8.5 ...................................................................................................... 7.2.2 ............................................................................................................... Recital C
CcqgI~ ...................................................................................................................................... 21.4
AdvisnrV Pd .......................................................................................................... 7.2.4 ......................................................................................................................... Schedule 3 (1) (a)
Rags .......................................................................................................................................... 21.13
Deferredlm ................................................................................................. Schedule 3 (3) (b)
kuge ......................................................................................................................... 3.2.3
iverv Pnint ............................................................................................................................... 9.2
Pelivery Regime ........................................................................................................................... 9.3 .................................................................................................................... 2.3.1 .......................................................................................................... 13.2.9
)stem ................................................................................................................... 7.2.1
.. ..
........................................................................................................................... ... ...
..
................................................................................................................................ Di&kt Preamble
ict Event nf DW ............................................................................................................. 14.3 .................................................................................................................... 20.2
ive Datc ..................................................................................................................... Preamble
in0 Term ...................................................................................................................... 2.1.4 (c)
..
vii
DRAFT
August 18. 2004
Pe riad ............................................................................................................................ 9.7 ....................................................................................................................... 2.1.1
n Term .......................................................................................................................... 2.1.1 ............................................................................................................................. 17.1 .................................................................................................................. 5
iaI Periad ................................................................................................................................. 9.7 .................................................................................................................. 9.2 'Innenendent ........................................................................................................... 19
kaugfmg .................................................................................................................................... 5
Legal Fm ........................................................................................................................... 5
T.osses ......................................................................................................................................... 20.1
Maakkhs ............................................................................................................................. 11.1
MCTn Recital A
MWT) ......................................................................................................................................... 3.1.2
f&MNmd ............................................................................................................................... 6.3 Ilffer 18.2.2
..................................................................................................................................
New C- ...................................................................................................................... 3.5.1
Nntk ......................................................................................................... 2.1.4(~)
AV- ........................................................................................ Schedule 3 (2) (c)
nr ~llhsldles ......................................................................................................... -3.1.2
Nnth ............................................................................................................................. 3-3
lkfzh&& ................................................................................................................................ 3.3
Jktk ................................................................................................................................. Preamble
lktg Preamble .......................................................................................................................... 4.2
Pnsei Preamble Event of- .......................................................................................................... 14.1 ................................................................................................................. 20.1 ..................................................................................................................... Recital A
Inn F. v& .................................................................................................... 8.5
l3qsci ................................................................................................................................. Recital A .................................................................................................... 12
IikpeaTnterest .......................................................................................................................... 18.1
4.1 .................................................................................................................... 2.1 S(a) ......................................................................................... 2.1.5(c)
nn Prie .......................................................................................................... 2.144 .......................................................................................................... 2.1.5(b)
PriE ........................................................................................................................... -3.1.1 .......................................................................................................................... 8.2 ........................................................................................... Schedule 3 (2) (d)
RLU ................................................................................................................................................. 5
Rapst .................................................................................................................................... 18.2.1
CWA Price ................... 1 ................................................................................... Schedule 3 (2) (b)
.........................................................................................................................................
..
....................................................................................................................................
..............................................................................................................................
............................................................................................................
viii 30
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August1 8. 2004
........................................................................................................................ 20.3
Shnrtfall ...................................................................................................................................... 10.1
Site ...................................................................................................................................... Recital B
Right ............................................................................................................................ 14.2.3
Subs@! ...................................................................................................................................... 3.1.2
sqqhfmblAmeements ............................................................................................................ 1.2 ................................................................................................................. 1.2 ............................................................................................................ 7.2.3
Sphdht ................................................................................................................................ 7.2.1 .......................................................................................................... 7.2.1
elivered ......................................................................................................................... 3.4
T.e.ml ................................................................................................................................................. 2
Threshold ...................................................................................................................................... 9.7
ACUUU.~ ................................................................................................. Schedule 3 (3) (a)
Transfer ....................................................................................................................................... 18.1 ........................................................................................................................ 9.8 ..................................................................................................................... 8.1
lhbkdkm .................................................................................................................................... 2.2
Year Perid ............................................................................................................................. -14.1.1
..
ix
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August1 8,2004
WATER PURCHASE AGREEMENT
This Water Purchase Agreement ("Agreement'l), entered into as of this 28th day
ofSeptember, 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, financial, 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
("MGDI') 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 located at a site (the "Site") adjacent to the Encina Power
Station in the City of Carlsbad (the "City"). 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 3 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
DRAFT
August1 8,2004
other public agency, (b) the support of any activity undertaken by a person (including without
limitation Poseidon) which is supported in whole or in part by any contract, grant, subsidy, loan
or other form of assistance from 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 from 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:
OPERATIVE 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 from 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 from 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 (1 5) 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 from the Project, and such Supplemental Capacity shall otherwise be available
to the extent necessary to satisfy 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 (1 5) 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 from purchasing the Contract Capacity. The District
2 33
DRAFT
August1 8,2004
shall have the right to review the regimes 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 nullifj 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 Term 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 notifj Poseidon of its desire to
exercise the Extension Option for each Extension Term only by delivering Poseidon written
3
DRAFT
August1 8,2004
notice of such extension request (each such notice, an "Option Exercise Notice"). The District
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.
(b) Option Term. The term of the Purchase Option (the "Purchase
Option Term") 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 Term.
(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 shall 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 (10) days after 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 (10) days notice to the other
Party, may apply to the presiding judge of the Superior Court of the State of California, County
4 3 5-
DRAFT
Augustl8,2004
of San Diego, for the selection of a third, qualified appraiser. The District and Poseidon each
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 (1 0%) lower than the middle appraisal, and the high appraisal shall
be disregarded if it is more than ten percent (1 0%) 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 (10) 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 first 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 Effective Date (as such 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
5 36
DRAFT
August1 8,2004
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
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.
2.3.3 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.
2.3.4 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 Enti‘tlements required for the commencement of construction of the Project. In the event
that Poseidon has not obtained such Legal Entitlements by the Construction Permit 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
Permit 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 from the Metropolitan Water District of Southern California (“MWD”)
6 37
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August 1 8,2004
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
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
funding, including without limitation fhds 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.
3.2.3 Delivery Charge. Within twelve (12) months after the Effective 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 Section 9.2) 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 and/or 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
7
DRAFT
August 18,2004
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, Poseidon may send the District a notice (an “Overdue Notice”) with
respect to such invoice. Payments made more than fifteen (15) days after the date of the
District’s receipt of an Overdue Notice from Poseidon will bear a late feehnterest 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 notify
Poseidon of any such dispute and will pay any non-disputed 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 Section9.8) 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 Parties
under this Agreement; and (b) those methods, techniques and standards that, at the time a
8 39
DRAFT
August1 8,2004
particular service is performed and 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
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 successfully 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 Section9 (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 (IIRDA'I) 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.
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August 18,2004
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 District under
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
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.
6.3 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, from Poseidon’s pilot desalination facility
and the water fiom the District’s current imported water supply, in parallel, through two identical
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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 defined in Section 7.2.54) 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 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 performing (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 andor 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, 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 (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
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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 and/or copper from said
Consumer 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
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
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 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.
7.2.3 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 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
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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 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.
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
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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 Project as of the Effective Date. 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
notify the District, and the District and Poseidon shall meet promptly thereafter to determine
what corrective measures, if any, that need to be taken. The Parties acknowledge that corrective
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, that
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.
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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 8.5, the District shall accept all Product Water meeting the
Quality Standards made available at the Delivery Points in accordance with the Delivery Regime.
9.2 Delivery Points. The Parties shall use commercially reasonable efforts to
determine, within twelve (1 2) 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 notify 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 Appurtenant 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 (1 80) 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
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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 Operation 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.
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 Initial Period for Product Water Poseidon failed to deliver,
Poseidon shall, solely for the purpose of determining whether Poseidon has met the Threshold in
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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
impractical 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
approximation of the harm 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 Section 9.8 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 (10) 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
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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
under this Agreement exceeded such lesser price per acre foot for the amount of Product Water
sold by Poseidon at such lesser price pre 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 (b) all facilities necessary or
required to move Product Water out of Maerkle Reservoir for the purpose of delivering such
Product Water to wholesale customers other 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.
11.3 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 from 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 and/or other consideration Poseidon will pay or provide the
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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 10-day 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
Insurance”), subject to (i) such Additional Insurance being commercially 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 (1 0) 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 (ISO) 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 full 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 therefore, 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, from payments otherwise due
Poseidon. The District shall be under no obligation to purchase such insurance or be responsible
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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.
12.5 Waiver of Subrogation. Poseidon shall require its insurance carrier(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
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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 accordance with Section 11 hereof.
13.1.5 Additional Water Purchase Agreements. Poseidon shall have entered
into agreements with other purchasers for the remaining output of the Project.
13.1.6 Supplemental Agreements. Poseidon shall have entered into
Supplemental Agreements in accordance with Section 1.2.
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
successfully.
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
appropriate parties on mutually acceptable terms and
shall receive, either in cash or in credit, the Subsidy.
have entered into agreements with all
conditions pursuant to which the District
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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 successfully completed.
13.2.9 Development Agreement. Poseidon and the City shall have entered into
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 determined, in its reasonable judgment, that 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.
13.3 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 course 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
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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
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 comences 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 District 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.
t
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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 and/or 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 result of a Poseidon Event of Default after the Commercial Operation Date, 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
(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 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-In Right shall terminate upon the termination
of this Agreement.
14.3 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.
14.3.3 Failure to Perform. The District’s failure to observe or perform 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
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August1 8,2004
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 fiom the date the District
notifies Poseidon of such misrepresentation, or (ii) the District fails to notify Poseidon of such
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 and/or 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 with 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 (b) 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 district, 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.
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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
investigation pending or, to the District's actual knowledge, threatened against the District 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
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
obligation of Poseidon, enforceable against Poseidon in accordance with its terms.
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. All Legal Entitlements required in connection with Poseidon's performance of this
Agreement will be obtained as and when required by Applicable Laws.
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.
26 53
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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
perform 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
willful or negligent action of the Party relying thereon. Neither Party shall have 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
anticipated weather conditions for the geographic area of the Project), landslide, earthquake, fire,
explosion, flood, sabotage or similar occurrence; (b) 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; (0 the 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; (j) 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 from 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.
Majeure event which affects a Party to this Agreement, such
27
Upon
Party
the occurrence of a Force
shall be excused from its
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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 relating to such Force Majeure event; and
(c) implements mitigation measures to the extent commercially reasonable.
18. RIGHT OF FIRST 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
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 2 1.16, 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 Subject 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 shall 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 (180) days after the Acceptance Deadline, Transfer such Property Interest to any
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third party upon terms (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 (1 SO) 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 Tommittee") consisting of two (2) management representatives each from
Poseidon and the District and an Independent Representative. The Independent Representative
shall be mutually 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 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 (1 0) 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.
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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 from or relate to the gross negligence or willful
misconduct of any of the Poseidon Indemnitees.
20.2 Poseidon's Indemnity. Poseidon shall save, indemnify, 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 indemnify any of the
District Indemnitees to the extent any Losses arise 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
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
indemnifying Party shall pay such indemnified Party's reasonable out-of-pocket expenses
incurred in connection with such cooperation. The indemnifying Party shall keep the
indemnified Party reasonably informed as to the status of the defense of such claim. After
notice from the indemnifying Party to an indemnified Party of the assumption, and the defense
of a claim, the indemnifying 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 indemnifying Party at the
indemnifying 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
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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 andor 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 firm as counsel, together with a separate local law firm 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 indemnifllng 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 indemnifying 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
indemnifying 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 reasonably request to effectuate the purposes of this Agreement.
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
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 return receipt requested, or sent by reputable
overnight delivery service, such as Federal Express, and shall be deemed given: (a) if personally
31
DRAFT
August1 8,2004
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 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 Diego, CA. 92 10 1
Attn: President
Fax NO. (619) 595-7892
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
32 63
DRAFT
August1 8,2004
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.
21.8 Liberal 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.
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 in 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,
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 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 Party may
rely upon the facsimile signature of a Party on this Agreement as constituting a duly authorized,
33
DRAFT
August1 8,2004
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.
21.13 Time of the Essence. Time 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.
21.14 Authority. 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.
21.15 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.
2 1.16 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 furnish such
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
DRAFT
August 1 8,2004
changes to the terms 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 carrying on the business of Poseidon shall be obligated to perform Poseidon’s
obligations hereunder.
21.1 7 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
arise 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
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 2 1 , 2004.
35 66
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August 1 8,2004
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 1240.660.
21.21 Recordation ofAgreement. 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
financial 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 otherwise
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 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 (f) 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 21.22, 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.
36 67
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August 18,2004
[The balance of this page intentionally left blank]
37
DRAFT
August1 8,2004
IN WITNESS WHEREOF, this Agreement has been executed as of the date and year first
above set forth.
"District" I' Poseidon"
Carlsbad Municipal Water District, a
municipal water district
Poseidon Resources (Channelside) LLC, a
Delaware limited liability company
By:
By:
Its:
Its:
38
schf&M
Prb
1.
-. 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 Pricei) shall be adjusted as follows:
Base Pricei = Base PriceInitiai x ((70% x (CPIi + CPIInitid)) + (30% x (ECi + ECInitial)))
Where:
Base PriceInitid = the Base Price as determined 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
quarteri
CPIInitid = the most recently published value of the CPI as of the Effective Date.
CPI = the Consumer Price Index, All Urban Consumers (CPI-U) (1 982-84 = 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 ECInitial x (CPIi/CPIInitial)
ECInitial = $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.
(b) in m. 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 manner 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.
(a) Iun lhxmws. In no event shall the Base Price be reduced as a result of
adjustments made pursuant to this Schedule 3.
1
2. AVW wakdhi
CJnmnnnenta. 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.
r Av -. 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.
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.
(a)
(b)
(c)
(4
3.--.
(4 -. 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:
z
(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).
(b) 4crplmt. 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.
Tru Provlslnns. If at the expiration of the Term ..
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 from 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:
((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
Attachment A
Assumptions:
Cumulative adjustment through the beginning of the third Water Year of 7%.
Base PriceInitial -
CPIi -
CPIInitial -
EC i -
ECInitid -
Base Price i =
$86l/acre-foot
219.7
205.3
$64.20/MWH
$60/MWH
$86l/acre-foot x ((70% x (219.7 - 205.3)) + (30%
x ($64.20/MWH -+ $60/MWH)))
$92 1.36/acre-foot
-
-
-
-
-
- -
1 73
Schedule 8.2 - Quality Standards
Quality
Parameter lo
Sampling Concentration Limits
3 Extreme4 2 Sample Method
Units Analytical
Method’ Sample
period Tendency
Total Dissolved
Solids oneyear
one year
one year
Chloride
Weeklygrab mg/L 350 400
Weeklygrab mg/L 180 210
Weekly grab mg/L 0.5 0.8
~~
Bromide
one year Boron Weeklygrab mg/L tbd’ l5
Turbidity
SDS-THM9
oneyear SDS-THM~~ > 70% of < 100% of
MCL7
Monthly Grab:
50%desal& mgL MCL7
50% Aqued
SD S -HAA9
oneyear SDS-HAA~’ > 70% of 100% of Monthly Grab:
50%desal& mg/L MCL7
50% Aqued MCL7
Temperature one
month
2540 C
4110 B
4110 B
daily grab “F - 85 “F
3120 B
2130 B
5710 C
5710 D
5710 D
5710 D
2550
one I Continuous6 INTUI 0.3 I 0.5 month
I I I I I I I Monthly Grab: 1 I > 70%:f 1 < 100% of 1 100% Desal MCL MCL7 one year
Monthly Grab: 1 I > 70%:f 1 < 100% of 1 lOO%Desal mg/L MCL MCL7 one year
I I I I I I I
1
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 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
Insurance
1.
2.
3.
4.
5.
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.
1
Exhibit 13.2.9
Development Agreement Term Sheet
Project
Parties
TERM SHEET FOR DEVELOPMENT AGREEMENT
BETWEEN THE CITY OF CARLSBAD
AND POSEIDON RESOURCES (CHANNELSIDE) LLC
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”).
Purpose of Term Sheet 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. -
Vesting
Term
The Agreement vests or “freezes in place” the General Plan,
zoning, and PDP if they are approved concurrently for the
Poseidon site. Any future permit 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.
Runs with the Leasehold The Agreement shall be recorded and run with the leasehold
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
33 1
agreement shall inure to, all successors in interest to the parties to
the agreement.”
Payment of Taxes and Fee
in Lieu of Taxes
Poseidon and successors 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 from 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.
Exemption from Any
Future Special Water
Production Tax or
Franchise Fee
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.
Modification or
Termination Per Code,
Provisions for Mandated
Annual Review
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.
Approval by Coastal
Commission
Assignment
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
by condemnation or involuntary sale, this Agreement and its
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
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 Agreement 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
IN WITNESS WHEREOF, the Parties have executed this Term Sheet as of the date below.
Date:
City of Carlsbad
By:
Poseidon Resources
(Channelside) LLC
By:
Walter J. Winrow
President
DICK MURPHY
MAYOR
September 15, 2004
Re: Desalination Plant Water Purchase Agreement
Dear Mayor Lewis:
As you know, I have long been a supporter of an additional water supply for the San Diego
region through desalination of the Pacific Ocean. The City of Carlsbad's proposed
desalination project is of high importance to this region. The continued drought and our
reliance on outside sources for over 90% of our water makes it imperative that our
communities aggressively seek projects such as the Carlsbad desalination project to provide a
safe and reliable local source of water for our citizens.
In view of the water purchase agreement coming before the Carlsbad City Council at the end
of this month, regarding the desalination project, I want to thank you and the members of the
City Council for your continued work to make the Carlsbad desalination project a reality.
Your ability to provide leadership on this issue will assure that Carlsbad and the region has a
more diversified water portfolio. Every drop of desalinated water produced in the City of
Carlsbad benefits the entire region by increasing the water supplies available to us all.
Thank you for your leadership and continued dedication to the San Diego region's future.
Best Regards, Tx- --\ DICK MURPHY
Mayor
City of San Diego
DM: TS/ghz
CITY ADMINISTRATION BUILDING, 202 C STREET, SAN DIEGO, CALIFORNIA 92101 (619) 236-6330
Printed M recycled paper
~~
0 STATE CAPITOL
P.O. BOX 942849 SACRAMENTO, CA 94249-0074
(916) 319-2074 FAX (916) 319-2174
0 DISTRICT OFFICE
221 EAST MAIN STREET
SUITE 205
VISTA, CA 92084
(760) 631-7670 FAX (760) 631 -7666
September 22,2004
MARK WYLAND
ASSEMBLYMEMBER, SEVENTY-FOURTH DISTRICT
COMMllTEE ASSIGNMENTS
REVENUE AND TAXATION
EDUCATION GOVERNMENTAL ORGANIZATION
INSURANCE VETERANS AFFAIRS
SELECT COMMITTEES:
EARTHOUAKE SAFETY & PREPARE
HIGH PRIORIlY SCHOOLS
WORKFORCE INVESTMENT GASOLINE COMPETITION.
VICE CHAIR:
MEMBER
iDNESS
MARKETING & PRICING ADULT EDUCATION
NATIONAL DEFENSE. TECHNOLOGY & JOBS
PRIVACY SCIENCE, MATHEMATICS 8 TECHNOLOGY
JOINT COMMITTEE AGENDA ITEM #i~9L LOP A MASTER PIAN FOR EDUCATION e:
..--tL The Honorable Claude A. “Bud” Lewis
Mayor, City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad CA, 92008
Mayor
City Cound
City Manager
CiQUor4 -.
City Clerk
Dear Mayor Lewis:
I am writing in support of your leadership in securing a new long-term water supply for
the residents of Carlsbad. A stable and affordable supply of water is vital to the quality
of life and economic well being of our state, and the City of Carlsbad is to be
congratulated for taking a lead role in developing new and innovative way of ensuring
that its residents enjoy a reliable supply of water for generations to come.
Today, with the increasing demands on our water supply, combined with the decreasing
resources of our public agencies to keep pace with our infrastructure needs, we need to
look for new ways of meeting our water needs.
That is why the Carlsbad Seawater Desalination Project is so important to our region.
Upon completion of this project, Carlsbad will be recognized statewide for being the first
California city to utilize a public/private partnership to develop and use desalinated
seawater to secure water independence for its residents, without major capital expenses,
debt, or risk to ratepayer funds.
I congratulate the Carlsbad City Council on your leadership and vision, and encourage
you to move forward with the completion of this vital project.
Please do not hesitate to contact me if I can provide any assistance to you on this or any
other issue in the future.
Sincerely,
MARKWYLAND
Assembly Member, 74th District
Representing the communities ofi Carlsbad, Del Mar, Encinitas, Escondido, Sun Marcos, Solana Beach, Vista and portions of Oceanside
Printed on Recycled Papr
San Diego County Taxpayers Association
Dedicated to promoting cost-effective and efficient government and opposing unnecessary new taxes and fees.
625 Broadway, Suite 61 4, Sun Diego, California 921 01 -541 3 -- Telephone: 619/234-6423 Facsimile: 61 9/234-7403
www.sdcta.org
September 23,2004
CwD AGENDA ITEM # ‘3
Mayor e:
City Council
City iManager
City Attorney
City Clerk The Honorable Mayor Claude “Bud” Lewis
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Re: Sea Water Desal cc70:
Dear Mayor Lewis,
Q ec&-,v ex q--2 x - H
City Q1-b
@.’iPt. t-*+J Q.ehx- FJ\;-- t\*
On behalf of the Board of the Sm Diego County Taxpayers Association (SDCTA), I wish
to express our Association’s full support of the
Resources and the City of Carlsbad to purchase
located in Carlsbad. SDCTA compliments the Carlsbad City Council and your
management team for its vision and hard work 0x1 this vital re@ond issue.
SDCTA has consistently urged the re
in order to meet the water needs of our growing region and wrlomy. San Diego must
diversify its supply portfolio if0 and improve the
quality of life for all of our reside s, such as the one that
your City has developed with Poseidon, go a loiig way toward meeting that goal.
ent between Poseidon
esalination project
’s water rwource agencies to explore all options
By taking the leadership role in advancing this publidprivate partnership, Carlsbad has
shown itself as a true regional leader and set an outstanding example. Again, SDCTA
fully supports this action and urges the Carlsbad City Council to adopt the recommended
agreement. Should you have any questions or need further information, please do not
hesitate to contact our office.
Lisa Brigs, Executive Director
San Diego County Taxpayers Association
Cc: Members of the City Council
Founded in 1945
09/27/2004 12:Ol FAX 858 385 0179
Assemblyman, 75* District
STATE CAPITOL
SACRAMENTO, CA 842490075
(816) 319-2075 FAX (916) 319-2175
DWICT OFFlCE BSO9 MlRA MESA BL. SUITE 130 SAN DIEGO. CA 92131
EO. BOX 942849
(ase) 689-6280 FAX (8513) 1je9-62~
\
ASSM. GEORGE A PLESC I A
I,
@ 001
COMMITTEES
VICE CHAIR: EDUCATlON
MEMBER: HEALTH WATER, PARKS d WILDLIFE
EWL
=mMmmber.pW@assanblycapov
WEBIUTE
-.-=fnbbJ=gavlpcescis ..
AGENDA I’FM #
C: Mayor
City Council
The Honorable Claude A. “Bud” LeGs City Manager I Mayor I
\ i City of Carlsbad
1200 Carlsbad Village Drive
City Attorney
City Clerk
-
i ~QCP<V& q-=s -04 i I l%:c\. QL$-
Carlsbad CA, 92008
*$is‘(. e.,% Dear Mayor Lewis:
I am writing to commend you and yo& colleagues on the City Council for your progress
in deveIoping and securing a new and !reliable long-term drinking water supply for the
residents of Carlsbad.
Gwen that San Diego County must idport 90 percent of its fresh water from Northern
California and the Colorado River, w0)Tking to ensure a safe, affordable, and steady
supply of water through desalination is essential to the quality of life and economic well-
being of our region, as well as our stak. The financial resources of our public agencies,
as you know, are in some cases finding it difficult to keep pace with the demands of our
infrastructure needs.
For that reason, publidprivate partnerihips, like the Carlsbad Seawater Desalination
Project that you are developing in conjunction with the private sector, is critically
important to our region. This resourcefill project puts the residents of Carlsbad Within
reach of affordable water independence will into the fuhue, without additional debt or
I applaud the Carlsbad City Council 04 your leadership and vision, and encourage you to
move forward with the completion of &s essential project.
crsr-fel e.,*> cb=Gw
I
I
I i
risk to taxpayer fimds. I I
Sinceyely, I
SEP-27-04 11 :33AM FROM- T-978 P. 002/002 F-359
!!!BBIOCOM
September 24, 2004
The Honorable Bud Lewis, Mayor and
Members of the City Council
City of Carlsbad
1200 Carlsbad Village Drive
ii43~N13h ITEM #
c: Mayor
City Council
City Manager
City Attorney
City Clerk
As you and your colleagues consider the next steps related to the Poseidon Carlstc I
seawater desalination project, I urge you to consider the importance of water sup;
for local business and industry.
A high-quality, reliable and affordable water supply is especially critical to "ci-
members of BIOCOM and the life science industry. BIOCOM is the largest regioi-.
life sciences association in the world, representing more than 450 companies. C
mission is to position the Greater San Diego life sciences community to achie
success on the world stage of scientific and technological innovation, and in t
development of products that improve global health and quallty of life. The City .
Carlsbad is home to several companies that are leading the way in that innovati
and development, including CancerVax, lnvitrogen and lSlS Pharmaceuticals.
Our members, including those in Carlsbad and surrounding areas, rely upon *:'
availability of a high-quality, affordable water supply during research, developmc: I
and production. The City of Carlsbad has a unique opportunity to secure this wb
supply through seawater desalination. It is our hope that you will move forward w I
the Poseidon Carls bad desalination facility and put innovation and technology
work for Carlsbad's water future.
Thank you for your thoughtful consideration of this critical issue.
I-
President and CEO
i
4510 EXECUTIVE DRIVE, PLAZA ONE. SAIv DIEGO. CA 92121 TEL 858-455-0300 FAX 856,455-0022 WWW.BI0COM.O
09/27/2004 15: 50 6192263944
September 24,2004
Mayor Bud Lewis aid Council Members
City of Carlsbad
I, 200 Carlsbad Village Drive
Carlsbad, CA 92008
Ret Desalination Project
. Dear Mayor and Council Members:
PAGE 01/01 HSWRI
I understand tllat the City of Carlsbad is considerhg the future opportunities for a
seawater desalination facility at the Encina Power Station. The Hubbs-Sea World
Research Institute's Leon Raymond Hubbard, Jr. Marine Fish Hatchery is located on the
Agua Hedionda Lagoon, across fkom the proposed desalination facility. Accordingly, we
are concerned that all dcvelopment along the Lagoon be done in a manner to conserve the
Lagoon's vital and productive marine life.
Because of our unique relationship to the Lagoon, I havc reviewed the environmental
studies prepared for the Poseidon desalination facility. 1 respect the work of Drs. Jenkins
and Graham who prepared thc studies. which I believc lo be authoritative. After
reviewing their environmenial reports, I do not believe that the desalination facility will
have a negative impact on the environment, the Agua Hedionda Lagoon, or our white
seabass hatchery.
Thank you for affording our Institute the opportunity to provide an opinion on the
impacts of the proposed desalination facility during your dclibei-ations on this project..
Sincerely,
Donald B. Kent
Co-PrincipaI Investigator,
Ocean Resources Enhancmmt
and Hatcliery Program
2595 lngraham Street I San Diego. CA 92109 I T: 619.226.3870 I F: 619.226.394,4.
6295 Sea Harbor Drive I Orlando, FI. 32821 I T: 407.370.1650 I F: 407.370.1 t59 I www.hswri.org
..
I I
I
I
I.
AGENDA ITEM #
e: Mayor <c 7-0: C\e+ City Council
City Manager
City Clerk
-ad Village Business Association e State Street
Carlsbad, CA 92008
Phone and Fax: 760-434-2553
cvba@sbcalo bal. net
www.cvba.com
!&5t,C;* ew-s-w c\-x City Attorney h<n.
Hon. Bud Lewis, Mayor and
Members of the City Council
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
September 24, 2004
Dear Mayor Lewis and Members of the Council:
The Carlsbad Village Business Association (CVBA) is pleased to support the Poseidon Carlsbad
seawater desalination plant as an important step toward maintaining a positive business climate in
the City of Carlsbad.
CVBA members are active in many facets of our local business community, and we represent over
150 businesses in our thriving Village. These businesses include restaurants, medical and dental
services, and retail shops, among others, all of which are highly dependent on a consistent flow of
quality water resources. We look to the City Council for leadership on our water future, and
appreciate your pro-active approach to securing water for our long-term needs.
We encourage you to move forward with the Poseidon Carlsbad project for the benefit of the
businesses and residents of our wonderful community.
Si ncere I y
Lisa Limber
Executive Director
Carlsbad Village Business Association
PdF-&i+ Paul Vander Ploeg u President
CVBA Board of Directors
SACRAMENTO OFFICE
STATE CAPITOL
COMMITTEES ALL VETERANS AFFAIRS
0 SACRAMENTO. CA 958 14-4900 (9 1 6) 445-373 1 (9 1 6) 446-7382 FAX
DISTRICT OFFICES
0 27 126-A PASEO ESPADA
SUITE 1621
SAN JUAN CAPISTRANO
CA 92675 (9491 489-9838 (949) 489-8354 FAX
0 2755 JEFFERSON STREET
SUITE 101 CARLSBAD. CA 92008 (760) 434-7930 (760) 434-8223 FAX
WWW SENATE CA GOVIMORROWI
WADE C TEASDALE
CHIEF OF STAFF
SENATOR
CHAIR
ENERGY, UTILITIES
AND COMMUNICATIONS
(VICE CHAIR)
JUDICIARY
(VICE CHAIR)
GOVERNMENTAL ORGANIZATION
INSURANCE
TRANSPORTATION
SELECT COMMITTEES:
COLLEGE & UNIVERSITY
ADMISSIONS AND OUTREACH
DEENSE & AEROSPACE INDUSTRY
MOBILE & MANUFACTURED HOMES
SUBCOMMITTEES:
ADMINISTRATION OF JUSTICE
HIGH SPEED RAIL
NEW TECHNOLOGIES
BILL MORROW
THIRTY - E I G H TH SEN ATOR I A L DISTRICT
The Honorable Bud Lewis, Mayor
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad,CA 92008 1
Dear Mayo& &
September 22,20$& JOINT COMMITTEES &+‘DA ITE?,1[ #LEGISLATIVE AUDIT
C: Mayor cmwo
City Council
city Matagei
City Attorney
City Clerk
3
I am writing to commend you and the City Council for your progress in developing and
securing a new and reliable long-term drinking water supply for the residents of Carlsbad.
Ensuring the availability of safe, affordable, and environmentally responsible water
supply is essential to the quality of life and economic well being of our state. As you well know,
the resources of public agencies are having difficulty keeping pace with the demands on our
infi-astructure needs.
That is why publidprivate partnerships like the Carlsbad Seawater Desalination Project
that you are developing in conjunction with your private sector partner are so critically important
to the region. This innovative project puts the residents of Carlsbad within reach of affordable
water independence well into the future, without additional debt or risk to taxpayer dollars.
I congratulate the Carlsbad City Council on your leadership and vision and encourage
you to move forward with the completion of this vital project.
Please do not hesitate to contact me if I can provide any assistance to you on this or any
other critical issue in the future.
Senator, 38 District
Cc: Members, Carlsbad City Council
REPRESENTING SOUTH ORANGE C0UNM.NORTH SAN DIEGO COUNTY, INCLUDING THE FOLLOWING COMMUNITIES
BONSALL, CAMP PENDLETON, CAPISTRANO BEACH. CARDIFF BY THE SEA, CARLSBAD. ENCINITAS. ESCONDIDO, HIDDEN MEADOWS,
LAKE SAN MARCOS OCEANSIDE. RANCHO SANTA FE. SAN CLEMENTE SAN DIEGO. SAN JUAN CAPISTRANO, SAN LUIS REY. SAN MARCOS, SOLANA BEACH. VISTA
SflN DIEGO NORTH Economic Development Council ALL RECEIVED
September 23,2004
The Honorable Mayor and City Council C: Mayor
City of Carlsbad City Conndl
Carlsbad, CA 92008-1949
AGENDAITEM# CmCvD &$
1200 Carlsbad Village Drive R*ce;* -->a -4 city Manager cc To: City Attorney ~,t, C\uc\F- waerk
N,.h. RE: Poseidon Desalination Project b9-b ~!+5ckary-~
Honorable Mayor and Council Members,
The San Diego North Economic Development Council is writing in support of
the proposed desalination plant to be co-located on the Encina Power Plant
property.
Seawater desalination is of paramount importance to our region's future
water reliability. Currently, excessive reliance on imported water puts our
region at risk. Many of the recent advances achieved by the manufacturers
of desalination technology have made this a practical and affordable
alternative.
Reverse osmosis technology used in desalination was born out of San
Diego's own General Atomics in the 1960s. Today San Diego County is a
leader in the international desalination industry: more than 35 desalination-
related companies call the area home and employ 2,200 people, generating
more than $200 million in annual revenue.
Desalination is a good alternative to imported water because it's increasingly
affordable, reliable and under San Diego's control. Desalination also would
provide valuable economic and environmental benefits.
Poseidon Resources has worked diligently with the City of Carlsbad and
local water agencies since 1998 to develop the proposed facility under a
public-private partnership model. The project will benefit local residents with
50 million gallons of drinking water per day at a guaranteed price, while also
protecting public agencies and taxpayers from financial risk.
We want to thank the council for its consideration on this project.
Sincerely, C"
Interim President and CEO
760.598.931 1 fax:760.598.9325 www.sandiecronorthedc.ora 100 N. Rancho Santa Fe Road, Suite 124, San Marcos. CA 92069
LAGOON
FOUNDATION)
September 21,2004 AGENDAXTEMC
U Mayor
city Cwndl
city Managee
City Attorney
c=aty-
Qece-,\teQ %S-Q3
c;t-3 c--e&
QrSS4. c;+> c.4
Hon. Bud Lewis, Mayor and
Members of the City Council
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
UL. TQ:
hi-- Ch+
Dear Mayor Lewis and Members of the Council:
The Agua Hedionda Lagoon Foundation is pleased to support the Poseidon Carlsbad
Desalination Plant, and we encourage the City Council to support the project as well.
The Foundation, along with Cabrillo Power, has maintained stewardship of this precious
Lagoon as a unique Carlsbad resource with many thriving components. We are confident
that the Poseidon desalination facility will be a positive addition to long-term vitality of
the Lagoon, consistent with the mission and objectives of the Foundation.
We look forward to working closely with Poseidon as this project comes to fruition and
Kent Bricker
President
A California Non-Profit Corporation, 1580 Cannon Road, Carlsbad CA 92008 760-804-1969, www.aguahedionda.org
Ssp-27-2004 04:35pm F ron-SDCWA 1-856-522-6562 1-881 P.001/002 F-149
Gqec*‘\u e& 9- a% - oq
CC-l-0’. c;$ C\d
Qtj5JI. Q;t3 e\*\<
tc\;-. Q\ert; San Diego County Water Authority
4677 Overland Avenue San Diego, California 921 23-1 233
OTHER REPRESENTATIVE
Covnry d Son 0.w
[858) 522-6600 FAX (858) 522-6568 www.sdcwa.org
AGENDAWETMI
September 27,2004 U mw
CWCd The Honorable Claude A. “Bud” Lewis clg- Mayor *(rwanwsr
City of Carlsbad *- 1200 Carlsbad Village Drive
Carlsbad, CA 92008
RE: Status of Regional Seawater Desalination Project at the Encina Power Station
Dear Mayor Lewis:
I wanted to provide you wirh a progress update on the Regional Seawater Desalination
project at the Encina Power Station. As you may recall, based on your request for Ihe
Water Authority to engage in discussions with all the stakeholders related to a regional
seawater desalination project, the Water Authority Board, on August 12,2004, approved
six actions related to the regional project including:
1) Carlsbad Municipal Warer District, Carlsbad Housing and Redevelopment Agency,
regarhng coordination and mitigation for a regional seawater desalination facility.
Direct staff to negotiate an Inter-Agency Agreement with the City of Carlsbad,
2) Authorize staff to complerc the Environmental Impact Report (EIR) for the
Regional Seawater Desalination Project at the Encina Power Station and to seek
voluntary access to the site with the clear uiiderstandhig that nothing in this action is
intended to authorize or suggest acqujsition of Poseidon or Cabrillo’s property interests
by eminent domain.
3) of the Encina Power Station, to understand the status of their interests, goals and
objectives relative to a municipal water supply project on their propercy, the status of
their business relationship with Poseidon Resources of Stamford, Connecticut, and areas
of joint cooperation.
Direct staff to enter into discussions with Cabrillo Power, as the site host and owner
4) on the potential srmcturing of a public-private partnership for a regional seawater
desalination project at the Encina Power Station.
Direct staff to begm discussions with the Carlsbad Agencies, Poseidon and Cabrillo
Sap-27-2004 04: 36pn From-SDCWA
*y -
Mayor Lewis
September 27,2004
Page 2 of 2
1-858-522-6562 T-8EI P.002/002 F-149
5) the February 25,2004 letter from Chairman IRhinerson to Mayor Lewis.
Reaffirm thc Water Authority's support for local supply development as stated in
6) each month's Board agenda.
Direct staff to place the Encina Seawater Desalination Projea as an action item on
Regarding these actions, I am pleased to report that the Water Authoriry, Cabrillo and
Poseidon concluded negotiations last Friday on a license agreement that will permit the
Water Audiority to conduct its data collection activities on the power plant site in support
of an Environmental Impact Report for a regional desalination project. Also, as was
reported at the Water Authority Board meeting last Thursday, our staffs have met four
times and progress is being made toward an inter-agency agreement beween the Water
Authority and Carlsbad. Once we complcte OUT discussions, the Water Authoriv and
Carlsbad would begin discussions with Cabrillo and Poseidon on the potential structuring
of a public-private parmership for regional seawater desalination project. All in all, X am
very encouraged by the progress being made by all the parties worlang together to
develop a regional seawater desalination project that will not only bencfit Carlsbad, bur
the entire region.
In closing, I sincerely appreciate your vision and your assistance in helping to advance
seawater desalination in this region and your recognition of its importance to future water
supply reliability of San Diego County. I look forward to continuing to work with you
on this critical water supply project.
Sincerely,
c 3GL Bernie RZlinerson
Chair, Board of Directors
BOARD OF DIRECTORS:
Chair: Pam Slater-Price Sd District, San Diego County
Vice Chair: Ann Kulchin Mayor Pro Tem City of Carlsbad
Stpervisor Tom Wilson 5 Dlstrict, Orange County
Council Member Stephanie Dorey City of San Clemente
Supervisor Don Knabe 4th Dist. LA County
Cpncil Member Frank Colonna 3 District. City of Long Beach
Brian Brennan Council Member, City of Ventura
Sipervisor Susan Rose 2 Dist. Santa Barbara County
Council Member Emily Reill City of Santa CNL (Rep. AdBAG)
AMBAG
BEACON
SANDAG
SCAG
County of Los Allgeles
County of Orange
County of San Diego
Countyof Santa Barbara
County of Ventum
Orange County Sanitaaon Gist.
City of Carlsbad
City of Carpinteria
City of Capitoia
City of Coronado
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California Coastal Coalition
1133 Second Street Suite G ccw;qd 9-1- ’% -09
Encinitas, CA 92024 Rs?. c;t3 UtrrJC-
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STEVEN ACETI, J.D. 760.9443564 telephone
Executive Director 760.944.7852 fax
steveaceti@calcoast.org
September 28,2004 AGxxnArnM#rn~~~j) +53
C: Mayor
Hon. Bud Lewis, Mayor and City Conndl
Members of the City Council City Managaf
City of Carlsbad City Atto-
Carlsbad, CA 92008
Dear Mayor Lewis and Members of the Council:
1200 Carlsbad Village Drive CWQsri
The California Coastal Coalition (CalCoast), is dedicated to advocating
for coastal interests, and supporting policies and programs which promote
the preservation, protection, and restoration of California’s coastline. We
work to spread awareness of the importance of well-maintained beaches to
State and local economies, habitats and quality of life.
CalCoast believes that the Poseidon Carlsbad seawater desalination
project is consistent with our interests in preserving and protecting our
coastline. The plan to generate drinking water in Carlsbad demonstrates
responsible coastal management that is respectful of our precious
resources.
We congratulate the City of Carlsbad on moving forward with an innovative
approach to our future water supply while maintaining stewardship of your
important portion of California’s coastline.
Sincerely,
3
Steven Aceti, J.D.
Executive Director
CalCoast is an advocacy organization comprised of coastal communities and interest groups
www.calcoast.org
Cabrillo Power I LLC
4AtL2wd Gp44
4600 Carlsbad Boulevard
Carlsbad, CA 92008-4301
Tel. (760) 268-4000
Fax (760) 268-4026
September 28,2004
Mayor Claude A. “Bud” Lewis and
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Members of the City Council
Dear Mayor Lewis and Members of the Council:
I am writing on behalf of Cabrillo Power to reaffirm to you our
commitment to work with the City of Carlsbad and Poseidon
Resources Corporation to support the seawater desalination facility at
our Encina Power Station (EPS).
Cabrillo Power owns the EPS site, and at the encouragement of the
City, we executed a long-term lease with Poseidon that also provides
for access to our cooling water intake/outfall infrastructure, electrical
system, and operating services. The Poseidon desalination plant is a
complementary and cost effective use of our existing operation,
consistent with the service we provide to the residents and
businesses of Carlsbad and our stewardship of the Agua Hedionda
Lagoon.
We have had a long-standing cooperative relationship with the City
and Poseidon, and we will work closely together to give this needed
Carlsbad desalination project every chance to succeed.
Sincerely, t.
‘Keith S. Richards
President
t
CHAMBER OF COMMERCE
September 28,2004
Mayor Bud Lewis
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad. CA 92008
Dear Mayor Lewis:
Leadership is never an easy task. However, the City of Carlsbad has continually stepped up to
that task and proven time and time again how much a region can benefit from strong leadership.
Once again, the City of Carlsbad leads with a farsighted public policy proposal. The Carlsbad
Chamber of Commerce urges you to vote for the agreement with Poseidon Resources to provide
for the water needs of our residents and businesses.
By agreeing to this historic partnership, after years of working in conjunction with the San Diego
County Water Authority and other local cities, the City of Carlsbad once again shows true
initiative. Being a good neighbor is always important to this City. Therefore, this agreement will
allow other communities to benefit from being able to purchase one-half of the water produced
from the Poseidon plant. Leadership is also doing what is best for the people you represent. With
Poseidon Resources guaranteeing water supply and prices, this agreement is a win -win
situation.
Water is one of the most important factors for business. The benefits of a local desalination plant
managed by a public-private partnership will be a strong selling point for new businesses.
Carlsbad is the second largest home to biotech companies in San Diego. These companies, along
with manufacturing, tourism and small businesses depend on a reliable water supply. This
agreement gives businesses stability and the capability to thrive.
Poseidon Resources has proven to be a good partner. With thorough project-specific
environmental studies, tested water that exceeds all drinking water regulatory standards, and
guaranteed costs to the City, Poseidon has demonstrated their devotion to working with the
public. Our water, under this agreement, will not only be locally controlled, but we will be
dealing with the best of partners.
We must work together to guarantee San Diego’s water future. Now is the time to lead the way
towards yccrtert.eliability for decades to come.
President and CEO
Carlsbad Chamber of Commerce
cma
AGENDA ITEM # 3
Mayor
City Council
City Manager
City Attorney
City Clerk
C:
September 2 1 , 2004
Hon. Bud Lewis, Mayor and
Members of the City Council
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
Dear Mayor Lewis and Members of the Council:
The City of Carlsbad is a wonderful place to live, work and play, due in great part to your
leadership and planning for the needs of our vibrant community. As you plan for the
water needs of our existing and future residents and businesses, we encourage you to
pursue the option of seawater desalination in Carlsbad.
Seawater desalination is environmentally safe and has become affordable. It is a natural
fit for Carlsbad, and the time to act is now. The Poseidon Carlsbad project offers our
City a new source of high quality water and makes the most out of an existing industrial
site. Please give this project your highest consideration and support as you plan for the
next generation in Carlsbad.
Sincerely
5600 AVENIDA ENCINAS Su1,rt: 100 CARLSRAD, CA 92008
TI:LIIPHONI: 760 930-9 123 FAX 760 43 1-9020 wu~w.theflotc.crfieIds.corn
Carlsbad closer to water reliabilitv J
TED .OWEN water shortages that could standards under the law. crimle the local economy. Carlsbad will never be obli- -- Tonight the city of Carls- Water issues rarely ri-se to gated to accept or pay for wa- bad is poised to take a his- a level of importance for ter that does not meet the toric step toward ’most of us until quality standards. Finally, the achieving its goal faced with a city will retain land-use con- of water reliabili- shortage and the trol over the project site, gain ty. The city is vot- need to ration. $2 million in new property ing on a monu- Once again, the tax revenue from the redevel- mental water city of Carlsbad’s opment area and gain three purchase agree- ment with Poseidon Re- sources that ensures Carls- bad residents will have a reli- able supply of water for decades to come. The 50 million-gallon-per- day desalination plant will be located at the site of the Encina Power Station. It will initially produce enough fresh water annually for 300,000 families. When com- pleted in 2008, it will be the largest such plant in the Western Hemisphere. The project will be a significant piece of the water infrastruc- ture needed to meet the goal Set by San Diego County Wa- ter Authority officials to get 15 percent of the region’s wa- ter supply from local seawa- ter desalination by 2016. The water agreement, sup ported by a thorough project- specific environmental re- view process, will guarantee that Carlsbad’s residents and businesses receive long-term economic security and pro- tection from drought-related
leadership shines with a far-sighted public poli- cy initiative. Specifically, Carlsbad se- cures a cost-certain, locally controlled, drought-proof sup ply of water with all risk borne by the private sector. Poseidon Resources will deliver to Carlsbad its entire daily requirement and as- sume all risks associated with the financing, development, construction and operation of the project. The water will be appropriated for public use by the city, guarantcking that all drinking water produced by Poseidon will remain in the public domain. The agreement makes fi- nancial sense for the city be- cause Poseidon will provide water at a cost never to ex- ceed the price of water that it could purchase from the Wa- ter Authority, which is its im- ported water wholesaler. Wa- . ter produced by the desalina- tion plant and delivered to Carlsbad will meet or exceed all drinking water regulatory
k;?y parcels of land near Agua Hedionda Lagoon and Terra Mar Beach. This land will maximize public access to the beach, lagoon and open space and recreational opportuni- ties. From the business commu-
nity‘s perspective, this is one of the most important votes members of the Carlsbad City Council will take in their careers. Carlsbad is the sec- ond-largest home to biotech companies in San Diego County. These companies, along with manufacturing and small businesses, depend on a reliable water souk-ce. Therefore, momentum must be maintained on the project so the region is prepared when the inevitable water &is hits. Tonight, thanks to the bold initiative of our local elected officials in Carlsbad, the re- gion can be well on its way to- ward water reliability.
Ted Own is president of the Carlsbad Chamber of Commerce.
Consideration of a Water Purchase Agreement Between Poseidon Resources andthe Carlsbad Municipal Water DistrictSeptember 28, 2004
OverviewBackground and historyOverview of Water Purchase AgreementStaff RecommendationsBoard discussion and action
BackgroundGeneral History
BackgroundXDesal Plant
BackgroundEncina Power PlantProposed Desalination Plant Site
BackgroundJune 2000 – Poseidon Resources asks for CMWD Board support of a feasibility studyJuly 2001 – Feasibility study submitted to CMWD Board Up to 50 Million Gallons per Day (MGD)Located adjacent to Encina power stationServe Carlsbad, surrounding area, and SDCWA
BackgroundJanuary 2002 – SDCWA took the lead in preparing an independent feasibility study Carlsbad and Oceanside provided partial funding for the study
BackgroundFinal study published in June 2003ConclusionsProject was feasibleSome concerns over business model for private projectTampa Bay project SDCWA reconsidered its business relationship with PoseidonNegotiations between all parties came to a halt in early 2004
BackgroundSDCWA concluded:It would be in the region’s best interest to allow Carlsbad and Poseidon to work on developing a local projectSDCWA should focus its energy on completing an update to the Water Master Plan and related EIR
BackgroundCarlsbad remained interested in completing:A Memorandum of Understanding with SDCWA A water purchase agreement with Poseidon
BackgroundStaff recently concluded negotiations with Poseidon on a Water Purchase AgreementOn August 12, SDCWA’s board voted to reopen negotiations with Carlsbad on an MOU or other form of agreement
Two Paths to DesalinationXDesal PlantSDCWA Poseidon
Two Paths to DesalinationPublic Project:SDCWA 50 to 100 MGD plantLocated at Encina power plantOther alternatives reviewed:SONGSChula Vista Publicly constructed and operatedProduct water transported to SDCWA distribution system
Two Paths to DesalinationPublic Project – Continued:EIR processProgram level EIR completed on Water Master PlanAccess issues for project EIRFinal decision required by mid early to mid 2006 to allow time to construct Pipeline 6 if desalination is abandonedEffects of public project on Carlsbad?
Two Paths to DesalinationPrivate Project:Privately owned 50 MGD plantLocated at Encina power plantPrivately funded, constructed, and operatedProduct water sold to local water consumersDistribution area could include Carlsbad, Vista, Oceanside, San Marcos, and SDCWA pipelineEIR in process (Precise Development Plan submitted in late 2003)
Two Paths to DesalinationPrivate Project – Continued:Draft EIR should be available near the end of the calendar yearTest facility in operation – approximately 2 yearsEffects of private project on Carlsbad?
Tampa Bay Desalination ProjectFirst large scale desalination plant in USA – 25 MGD (expandable to 35 MGD)
Tampa Bay Desalination ProjectDifferent opinions on responsibility for problemsHighlights the difficulty of constructing and operating a large scale desalination facility
Water Purchase Agreement
CMWD Board GoalsPrinciples of Negotiation (June 2002)Public improvements and economic benefitWater QualityWater QuantityWater Reliability Water Price
Public Projects and Economic BenefitProject is owned by a private companyProject is located within the South Carlsbad Coastal Redevelopment Area (SCCRA)80% of the property tax revenue will be received by SCCRARevenue will be used to fund projects identified in the redevelopment plan
Public Projects and Economic BenefitWhat if project is purchased by a public entity?WPA includes language that allows CMWD to offset lost tax revenues against the price of waterDevelopment agreement term sheet includes provisions that assure continuing tax payments to SCCRA
QualityMajor areas of interest:Effects of desalinated water on the delivery systemCompliance of product water with drinking water standards
QualityEffects of desalinated water on the delivery systemSystem of tests Distribution system modelConsumer system modelMonitoring protocol
QualityCompliance of product water with drinking water standardsAll current and future drinking water standardsAdditional water quality specifications developed by District staff and consultantsMeeting with major water customers
QuantityCarlsbad receives 100% of its daily demand – 10 MGD to 25 MGDShortfall rules for when plant is not operating at capacitySDCWA backup supply
ReliabilityFirst provider of water – Desalination plantFallback provider – SDCWADefault rules include liquidated damages and right to operate or purchase plant
PriceCarlsbad water customers will pay a rate for water equal to, or less than, the SDCWA rate in effect at the time
PricePrice per Acre-FootProposed Pricing PlanBase Price plus Delivery ChargeAvoided Charges Plus Rebate ValueYear
PricePrice per Acre-FootAvoided Charges Plus Rebate ValueBase Price plus Delivery ChargeAdditions to Tracking AcctPayments from Tracking AcctProposed Pricing PlanYear
PricePrice per Acre-FootAvoided Charges Plus Rebate ValueBase Price plus Delivery ChargeAdditions to Tracking AcctPayments from Tracking AcctCarlsbad pays the lower cost during this period. A balance accumulates in the tracking account.Carlsbad pays the higher cost until the tracking account reaches zeroProposed Pricing PlanCarlsbad pays a rate half way between the Avoided Charges amount and the Base Price Year
PricePrice per Acre-FootAvoided Charges Plus Rebate ValueBase Price plus Delivery ChargeAdditions to Tracking AcctPayments from Tracking AcctCarlsbad pays the lower cost during this period. A balance accumulates in the tracking account.Carlsbad pays the higher cost until the tracking account reaches zeroCarlsbad pays a rate half way between the Avoided Charges amount and the Base Price Proposed Pricing PlanYear
Conditions-CEQAWater ratesApplicable laws and permitsSale of remaining waterDelivery points, regime, chargeMonitoring and testingWater quality
Conditions(Continued)MWD subsidy (or equivalent)Development agreementBackup water supply from SDCWACabrillo consent
TransferPurchase Options:At end of term (30 years)Right of first offerDefault purchase
Other ConsiderationsCoastal Commission – March 2004 report “Seawater Desalination and the California Coastal Act”Risk:Risk of failure for CMWDRisk of failure for SDCWA
Recommendations
Recommendations1.Review the draft Water Purchase Agreement and refer comments and suggestions for revisions to staff for further negotiation with Poseidon.2.Approve the Water Purchase Agreement in concept, subject to any changes identified by the Water Board. Staff will return with final documents.3.Defer action on the Water Purchase Agreement until CMWD has completed negotiations with SDCWA –Return at specified Date4.Accept the report and take no action
www.ci.carlsbad.ca.us
Consideration of a Water Purchase Agreement Between Poseidon Resources andthe Carlsbad Municipal Water DistrictCouncil Discussion