San Diego County Water Authority-Building at night-MWD

Water Authority Prevails in Rate Litigation

The San Francisco Superior Court has ruled the San Diego County Water Authority is the prevailing party in the agency’s first two lawsuits to be heard challenging rates and charges set by the Los Angeles-based Metropolitan Water District of Southern California. The order entitles the Water Authority to recover its attorneys’ fees and costs in those cases, in addition to a $44 million damage and interest award made earlier.

“San Diego prevailed, and the judgment not only benefits its own ratepayers but all of the nearly 19 million people in Metropolitan’s service area because enforcing cost-of-service principles serves the interests of all ratepayers,” said Superior Court Judge Anne-Christine Massullo in her Jan. 13 order, which can be appealed. The exact amount of recoverable fees will be decided later.

In light of the order, Water Authority Board Chair Gary Croucher reiterated the Water Authority Board’s longstanding desire to avoid litigation and find common ground with other MWD member agencies. “This ruling only enhances our determination to find an equitable resolution that will not only conclude the few issues that remain pending in court, but also help avoid future litigation as new rates and charges are being considered for 2023 and subsequent years,” he said.

Protecting water ratepayers

The Water Authority filed lawsuits between 2010 and 2018 challenging water rates and charges as they were set and imposed by MWD on San Diego County agencies and their ratepayers. After a favorable court ruling invalidating MWD’s Water Stewardship Rate on the Exchange Agreement, the Water Authority worked with MWD to try to resolve the remaining issues. The MWD Board promised to fund almost $500 million in local water supply projects in San Diego County and the Water Authority agreed to dismiss claims against MWD’s Water Stewardship Rate on supply, which is used to fund local projects under the MWD program.

“It is deeply gratifying that the court not only validated our claims but acknowledged the importance of protecting ratepayers by water agencies following the law,” Croucher said. “This week’s order makes it clear once and for all that our desire to protect San Diego ratepayers was never intended to harm MWD, its other member agencies or the ratepayers they serve. Rather, the litigation was necessary to address serious flaws in MWD’s rates that will, as the court said, ultimately benefit not only San Diego County ratepayers, but all Southern Californians.”

Rate litigation

The Water Authority’s first two rate cases – covering 2011 to 2014 rates – resulted in the court ordering an increase in the Water Authority’s preferential right to MWD water by as much as 100,000 acre-feet a year, equivalent to about twice the annual production of the $1 billion Carlsbad Desalination Project. MWD has already complied with this ruling and adjusted its records accordingly.

The court also determined that MWD must pay the Water Authority damages for illegal charges imposed on delivery of the Water Authority’s water under the Exchange Agreement. A Superior Court judge in August 2020 awarded the Water Authority $44,373,872.29 covering rates paid by San Diego County ratepayers during 2011-2014.

Water Stewardship Rate charges

San Diego County ratepayers have also avoided paying more than $45 million from 2018-2020 after MWD suspended its invalid Water Stewardship Rate charges on the Exchange Agreement. The improper charges would have cost local residents more than $500 million over the term of the Exchange Agreement. Currently, MWD owns the only pipeline that can deliver the Water Authority’s independent supply of Colorado River water to San Diego County and it sets the unregulated water rates which govern and control the delivery of water to San Diego County.

In addition, the court ruled that MWD had illegally barred the Water Authority from receiving money from MWD’s local water supply program, even though the Water Authority was still being forced to pay for it. MWD lifted the ban in response to the court’s order, and ultimately promised the nearly $500 million for water supply projects in San Diego County including the City of San Diego’s Pure Water North City Project Phase 1, East County Advanced Water Purification Project, Escondido Membrane Filtration Reverse Osmosis Facility and Fallbrook Groundwater Desalter Project.

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Carlsbad Desalination Plant Celebrates 5th Anniversary

The Claude “Bud” Lewis Carlsbad Desalination Plant is celebrating its fifth year of operation this month. More than 65 billion gallons of water from the plant have provided a sustainable and reliable supply to businesses and residents of San Diego County since December 2015.

The Carlsbad Desalination Plant produces more than 50 million gallons of high-quality, locally controlled, water every day. It’s a foundational water supply for the San Diego region that minimizes the region’s vulnerability to drought or other water supply emergencies.

Desalination plant diversifies region’s water supply sources

“The desalination plant is a key piece of the region’s multi-decade strategy to diversify our water supply portfolio,” said Sandra L. Kerl, general manager of the San Diego County Water Authority. “As we celebrate five years of operation, the plant continues to provide a drought-proof supply that reduces our dependence on imported water sources vulnerable to droughts, natural disasters, and regulatory restrictions.”

A 30-year Water Purchase Agreement between Poseidon Water and the Water Authority allows for the production of up to 56,000 acre-feet of water per year, enough to meet the needs of approximately 400,000 people. The facility is the largest, most technologically advanced and energy-efficient desalination plant in the nation.

Carlsbad Desalination Plant celebrates water supply accomplishment

“The Carlsbad Desalination Plant was once merely an ambitious vision. Fast forward to today, and we are celebrating the plant’s fifth anniversary of operations, during which we have successfully produced enough water to meet the needs of San Diego County residents,” said Carlos Riva, CEO of Poseidon Water. “This is an incredible accomplishment and an example of how communities throughout California can invest in the state’s future water security.”

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The Carlsbad plant uses reverse osmosis to produce approximately 10% of the region’s water supply; it is a core supply regardless of weather conditions, and it is blended with water from other sources for regional distribution. Photo: San Diego County Water Authority

Desalination uses reverse osmosis technology to remove water molecules from seawater. Water from the ocean is forced through tightly-wrapped, semipermeable membranes under very high pressure. The membranes allow the smaller water molecules to pass through, leaving salt and other impurities to be discharged from the facility.

Reverse osmosis is the heart of the Carlsbad plant. During this process, dissolved salt and other minerals are separated from the water, making it fit for consumption. This reverse osmosis building contains more than 2,000 pressure vessels housing more than 16,000 reverse osmosis membranes. Photo: San Diego County Water Authority


July 22, 2020: New Seawater Intake Pumps Preserve Marine Environment

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Three new fish-friendly seawater intake pumps, commissioned in July 2020 at the Claude “Bud” Lewis Carlsbad Desalination Plant, are among the most environmentally advanced intake pumps in the world. The pumps are part of a broader effort to ensure the long-term health of the marine environment near the Plant, which sits on the shores of Agua Hedionda Lagoon. Photo: San Diego County Water Authority

Installation of the new intake pumps is part of a phased program to replace the existing seawater intake and discharge facilities with state-of-the-art technology to protect marine life. The technology wasn’t available when the plant was operating with source water from the Encina Power Station.

The next steps include adding new intake screens, designed to prevent any sea-life larger than 1 millimeter (thicker than a credit card) from entering the plant. The new intake screens are the final part of upgrades, which when complete in 2023, will make the Carlsbad Desalination Plant the first desalination facility in California to comply with the 2015 California Ocean Plan Amendment, among the most advanced sea-life protection measures.

December 13, 2018: Carlsbad Desalination Plant Celebrates 40 Billion Gallons Served

Desalination plant project partners Poseidon Water and the San Diego County Water Authority celebrated delivering 40 billion gallons of drought-resilient drinking water to San Diego County during three years of commercial operations at the plant.

“It’s incredible what we’ve accomplished in three years,” said Sandra L. Kerl, at the 2018 celebration event, general manager of the Water Authority. “Since coming online in 2015, the Carlsbad Desalination Plant has met nearly 10 percent of the region’s water demand, and it will be a core water resource for decades to come.”
Desal plant-5th anniversary-40 billion gallons

Officials toasted a significant milestone in regional water supply reliability on December 13, 2018 at the Carlsbad Desalination Plant – the delivery of 40 billion gallons of drinking water during the plant’s first three years of commercial operations. (L to R: Water Authority Deputy General Manager Sandra Kerl, Poseidon Water CEO Carlos Riva, and former U.S. Senator Barbara Boxer share a toast at the third anniversary event. Photo: San Diego County Water Authority)

December 14, 2015: Region Dedicates New Plant in Honor of Former Carlsbad Mayor Claude ‘Bud’ Lewis

Operations are under way at the nation’s largest and most technologically advanced seawater desalination plant, which was dedicated today by more than 600 elected officials, community leaders and project partners. After successfully completing construction, the Claude “Bud” Lewis Carlsbad Desalination Plant has already produced more than 1.5 billion gallons of locally controlled water for San Diego County, helping to minimize the region’s vulnerability to the statewide drought.

Desal plant-5th anniversary-Carlsbad desal plan

The Carlsbad Desalination Project included 1.5 million hours of work in Carlsbad, Vista and San Marcos, supporting an estimated 2,500 jobs and infusing $350 million into the local economy. Project partners included the Water Authority, Poseidon Water, IDE Technologies, Stonepeak Infrastructure Partners and Kiewit-Shea Desalination. Photo: San Diego County Water Authority

June 29, 2015: Pipeline Installation Completed

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Construction of the 54-inch diameter pipeline began in spring 2013 in San Marcos. Crews worked in Carlsbad, Vista and San Marcos to reduce impacts on local businesses and residents. During the three-year construction process, the project supported an estimated 2,500 jobs and infused at least $350 million into the regional economy. Photo: San Diego County Water Authority

After more than two years of work, Carlsbad Desalination Project crews installed the final segment of the 10-mile conveyance pipeline that connects the Carlsbad Desalination Plant to the San Diego County Water Authority’s regional water distribution system. Construction crews lowered the final piece of pipe – No. 2177 – into Macario Canyon in Carlsbad on June 29, 2015, completing a major element of the historic project.
“This final piece of pipe is a significant milestone for the Carlsbad Desalination Project, and a sign that the entire construction project is entering its final phase,” said Peter MacLaggan, vice president of Poseidon Water, the project’s private developer.
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The final segment of the desalination project’s pipeline is installed on June 29, 2015. The pipeline stretches 10 miles from the plant through the cities of Carlsbad, Vista and San Marcos to the Water Authority’s Second Aqueduct. Photo: San Diego County Water Authority

January 2014: Desalination Plant Completes First Year of Construction

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The Carlsbad Desalination Project includes a seawater desalination plant and a 10-mile, large-diameter pipeline. Construction on the plant began in late 2012 and pipeline construction began in spring 2013. Photo: San Diego County Water Authority

December 28, 2012: Construction Starts for the Carlsbad Desalination Plant

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Construction of the Claude “Bud” Lewis Carlsbad Desalination Plant started on December 28, 2012. Photo: San Diego County Water Authority

November 29, 2012: Water Authority approves 30-year Water Purchase Agreement with Poseidon Resources

The San Diego County Water Authority approves a 30-year agreement for the purchase of up to 56,000 acre-feet of desalinated seawater per year from project developer Poseidon Resources. With the agreement approved, Poseidon and the Water Authority secured financing in the bond market and construction started a month later.

Landmark Carlsbad Smokestack Coming Down

Anyone who’s driven past the Encina Power Station, a coastal Carlsbad landmark since the 1950s, can’t miss the changes in recent weeks.

Demolition of the old power plant is finally underway. Scaffolding lines the seaward side of the boxy concrete building, and there’s more at the top of its distinctive 400-foot-tall smokestack.

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Water Agencies Help Address California Energy Shortages

Water agencies across San Diego County are doing their part to stabilize the state’s power grid during this week’s heatwave by generating hydropower and altering operations to trim electricity demands – and they are offering long-term solutions to reduce future energy shortages.

The California Independent System Operator issued a statewide Flex Alert from Sunday through Wednesday, calling for reduced electricity use in the afternoon and evening to limit power outages. Blackouts could affect hundreds of thousands of San Diego County residents, if extreme heat persists.

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Producing and conserving power during energy shortages

At Lake Hodges, the Water Authority is running its pumped energy storage facility to meet peak demands. As water flows down the pipeline from Olivenhain Reservoir into Lake Hodges, it generates up to 40 megawatts of energy on demand, helping to manage temporary peak electrical demands or unplanned outages. Then, the water is pumped back to Olivenhain Reservoir when power demands are low to restart the cycle.

In addition, water agencies are taking numerous actions to conserve energy. For the Water Authority, the strategy includes temporarily reducing drinking water production at the Claude “Bud” Lewis Carlsbad Desalination Plant in collaboration with Poseidon Water.

The Carlsbad Desalination Plant is the largest, most technologically advanced and energy-efficient desalination plant in the nation, and it has produced more than 62 billion gallons of drinking water for San Diego County since it began operations in December 2015.

Starting Monday, the plant ramped down operations, making an additional 8 megawatts of power available for other uses. If more load reductions are necessary over the next several days, additional curtailment may be considered at the plant. The power provided by the plant could help offset current energy shortages.

“This partnership by the Water Authority and Poseidon is another reminder of the value of the cutting-edge technology and local control at the Carlsbad plant,” said Jim Madaffer, chair of the Water Authority’s Board of Directors. “Operations are flexible and the technology is nimble, so production can be ramped up and down in response to local needs.”

Water agencies respond to energy shortages

In addition, local and regional water agencies are temporarily shutting down or reducing flows at pump stations and turning off HVAC systems in the afternoons. Some agencies also have the ability to convert to less energy-intensive treatment, for instance, by replacing ozone with chlorine.

Local water agencies also are tapping their significant backup power generation capacity – at their own expense – to ease the strain on the energy grid, following Governor Newsom’s executive order that suspends some regulatory requirements for those units during this emergency event. Local agencies are also looking to work with the administration to ensure that their backup generation capacity can be used proactively to help avoid future energy shortages.


Pumped Energy Storage-WNN-June 2020-graphic

Pumped energy storage facilities are part of an integrated and sustainable energy system that
includes the production, storage and distribution of clean energy.

Environmentally friendly pumped storage project proposed

Beyond the immediate concerns, this week’s heat wave has highlighted the need to increase large-scale energy storage as the state moves toward a goal of 100% renewable energy by 2045. Put simply, the sun doesn’t always shine and the wind doesn’t always blow enough to meet demands, so the state needs more capacity to store peak renewable energy production for peak demand periods.

The Water Authority has proposed building a large-scale pumped storage project at the San Vicente Reservoir near Lakeside. Pumped energy storage projects are designed to store excess renewable energy from solar and wind when it’s available, and then discharge that energy when energy demands increase and renewable energy is scarce.

Solutions for long-term energy challenge

A 2019 white paper highlighted the importance of pumped energy storage to California’s future.

“Our current situation is the direct result insufficient planning; the state clearly needs additional energy storage now and will need much more in the future,” said Gary Bousquet, energy program manager for the Water Authority. “Environmentally friendly pumped storage projects should be started immediately to address this shortfall, or power reliability will get significantly worse. The San Vicente project can be started now at no cost to taxpayers – users only pay when the project comes online.”

Local Leaders Discuss Impacts of Water Conservation Laws

Four elected officials representing area water districts expressed frustration with state laws aimed at water conservation during an American Liberty Forum of Ramona informational meeting Saturday, June 27.

Roughly 50 attendees gathered at Ramona Mainstage to hear the “Water Regulations Today and Tomorrow” presenters discuss the pending impacts of Senate Bill 606 and Assembly Bill 1668, which were signed into law by former Gov. Jerry Brown in May 2018.

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Strategic Steps Minimize Water Rates for 2021

Following a public hearing, the San Diego County Water Authority’s Board of Directors today adopted rate increases for 2021 that are 30% lower than proposed last month following a series of refinements by staff. In addition, the Board directed staff to return in September or October with any further opportunities to reduce the 2021 rate increases, such as a decrease in rates set by the Metropolitan Water District of Southern California or the acquisition of federal or state economic stimulus funds.

As adopted June 25, the all-in rates charged to the Water Authority’s 24 member agencies will increase by 4.8% for untreated water and 4.9% for treated water in calendar year 2021. The new rates take effect January 1, 2021.

Rate increases are driven by reduced water sales, higher rates and charges from MWD and continued regional investments in supply reliability.

Secure water supply is foundation of economic recovery

Since the staff’s rate proposal was released in May, the Water Authority re-evaluated several assumptions driven by COVID-19 recessionary pressures based on new economic data and forecasts. The Water Authority also funded some costs related to the Carlsbad Desalination Plant this year instead of in 2021. The 2021 rates and charges may be further reduced if MWD makes material changes when revisiting its budget and rates this fall.

“We’ve taken a series of strategic steps to minimize rate impacts during this pandemic-induced recession, despite numerous factors putting upward pressure on rates,” said Water Authority Board Chair Jim Madaffer. “At the same time, the Water Authority is maintaining its long-term fiscal stability while ensuring a safe and reliable regional water supply for residents and businesses that will be the foundation of our economic recovery.”

In 2021, the Water Authority will charge its 24 member agencies an all-in municipal and industrial rate of $1,474 per acre-foot for untreated water, or $68 more per acre-foot than they currently pay. Charges would be $1,769 per acre-foot for treated water, or $83 more per acre-foot than in 2020.

Actual figures will vary by member agency, and each member agency will incorporate costs from the Water Authority into the retail rates it charges to residents, businesses and institutions. (Note: An acre-foot is about 325,900 gallons, enough to serve the annual needs of 2.5 typical four-person households in San Diego County.)

In addition, the rates package includes new Permanent Special Agriculture Water Rates, following the Board’s decision late last year to make the temporary program permanent. The program provides farmers with lower rates that correspond to a lower level of water supply reliability. In 2021, the untreated PSAWR will increase from its current level of $755 per acre-foot to $777 per acre-foot and the treated PSAWR will increase from $1,035 per acre-foot to $1,072 per acre-foot.

Rising costs from MWD affect rates

The fiscal pressures faced by the Water Authority include:

  • Reduced water sales, which are 14% below the current budget and expected to remain low in 2021 due to coronavirus-related business closures and other factors. Decreased water sales put upward pressure on rates because costs must be spread across fewer units sold.
  • Rising costs from MWD that reflect continued increases to its base supply rates and charges and the amount MWD charges to transport the Water Authority’s independent Colorado River supplies. For the Water Authority, MWD’s adopted 2021 rates increase supply costs by more than 9%, or $15.4 million.

The Water Authority’s 2021 rates were developed in conjunction with an independent cost-of-service study to ensure rates and charges comply with state law, legal requirements, cost-of-service standards and Board policies, and strategic tools such as the Long-Range Financing Plan.

In addition, the 2021 rates are designed to ensure Board-adopted debt coverage ratios that support the Water Authority’s strong credit ratings and minimize the cost of borrowing money for construction projects. The Water Authority has credit ratings of AAA with a stable outlook from S&P, AA+ from Fitch, and Aa2 with a stable outlook from Moody’s.

The rates adopted by the Board are the result of strategic measures that include:

  • Providing more than $80 million in rate relief from the Rate Stabilization Fund over the next 24 months.
  • Capitalizing on historically low interest rates and strong credit ratings by lowering annual debt expenditures by optimizing cash to restructure outstanding debt to provide significant savings.
  • Planning to withdraw stored water to reduce water purchases while maintaining water reserves for future years – the result of careful planning and investments over more than two decades.
  • Reducing budget expenditures with a hiring freeze reduced professional services contracts and reprioritizing more than $30 million in capital projects.

12-Hour Shifts, Sleeping in RVs: Carlsbad Desalination Plant Gets New Crew

A 10-person crew is in the midst of a three-week shelter-in-place shift at the Claude “Bud” Lewis Carlsbad Desalination Plant, relieving an initial crew that self-quarantined on site for three weeks to continue producing clean drinking water for county residents amid the COVID-19 pandemic.

Starting March 19, the first crew of 10 “mission-critical employees” was stationed at the plant to continue operations, working two 12-hour shifts each day and sleeping in RVs in the plant parking lot, according to Poseidon Water, which manages the plant. Food and other supplies were delivered on a daily basis.

The crew was relieved last Thursday and the current crew will remain at the plant until April 30.

Artwork from Colton, age six, thanking the ten Carlsbad desalination plant workers sheltering in place to maintain operations. Courtesy: Poseidon Water Community Thanks Desalination

Community Thanks Desalination Plant Workers For Sacrifice

Expressions of gratitude and support have poured in from a grateful community to the ten volunteers sheltering in place at the Claude “Bud” Lewis Carlsbad Desalination Plant in San Diego County. As people learned about their effort to maintain plant operations and keep the water flowing during the COVID-19 pandemic, residents responded by expressing their heartful thanks through messages, photos and artwork.

“The desal plant employees were overwhelmed with the community support they have received,” said Jessica Jones, Poseidon Water director of communications. “They read and enjoyed every message, photo, and drawing.  The support was just the boost in morale that they needed to finish out their 21-days onsite.”

The on-site crew has sustained plant operations and maintenance since March 19 to ensure continued production of high-quality drinking water, in compliance with all state and federal drinking water standards.

Messages and artwork shared with the workers

Lori, a resident of Rancho Carlsbad, put her artistic skills to use with this entertaining thank you. Courtesy: Poseidon Water

Rachel Welland, Bay Park: “Each day I think about how crucial our water supply is, as we are all quarantined in our houses. I appreciate what you are all doing to keep us hydrated during these crazy times!”

Lucy Lusk, South Carlsbad: “Well I will never take that water that comes out of the faucet for granted again. Thanks for volunteering to stay at the desal plan to keep it running, we are grateful to you for your service to our community.”

Diane, Spring Valley: “Thank you for providing us clean water. I know how important your job is, because when I was growing up in the Philippines, there was no water, and we have to buy water by the drum. I’m sure your loved ones miss you terribly.”

The Adams Family including Mom, Dad, and three kids ages 7, 10, and 12: “Thank you for your personal sacrifice serving the surrounding communities. Water is precious. Water is life. Thank you for committing to keep our water safe and available.”

Kids put their talents to work

Kids got out their paintbrushes, pens, and even sidewalk chalk to let the workers know how much they were appreciated.

Miles Antoine, age 7, Chula Vista: “Thank you for helping everything grow!”

Miles Antoine, age 7, Chula Vista: “Thank you for helping everything grow!” Courtesy: Poseidon Water

Dylan, age 21 months, Carlsbad: “Thank you for helping provide us fresh water.”

Dylan, age 21 months, Carlsbad: “Thank you for helping provide us fresh water.” Courtesy: Poseidon Water

Zoe, age 10, Encinitas: “Thank you for being away from your families and keeping our water safe.”

Zoe, age 10, Encinitas: “Thank you for being away from your families and keeping our water safe.” Courtesy: Poseidon Water

Colson Hanson, age 6, Scripps Ranch: “Thank you for the hard work and staying at the plant so we have clean water.”

Colson Hanson, age 6, Scripps: “Thank you for the hard work and staying at the plant so we have clean water.” Courtesy: Poseidon Water

Heartwarming expressions of thanks

One resident was moved to write a poem for the desal plant workers.

Samantha, Carlsbad:

“Claude ‘Bud’ Lewis Desal Operators and techs showing some grace,

Changing your lives to Shelter in Place.

Missing your families and your comfortable bed,

I hope the City of Carlsbad keeps you well fed.

Toiling with coworkers for 12 hour shifts,

I only imagine there could be some rifts.

50 million gallons per day you give,

Without this water we could not live.

How long to stay? The time isn’t clear,

For your courage and hard work, I send you good cheer!”

Happy puppy

A 10-month old pup in Little Italy named “Archie Moore” had his owner provide a photographic thank you.

With a little help from his owner, this happy pup is thankful for a full water dish. Courtesy: Poseidon Water

Yen Linh Huynh, California: “Our hearts go out to you at the desal plant. It’s heroes like you that give humanity hope for a better day. Thank you from this family of 4.”

Barbara Blash, Oceanside: “Thank you so much for your efforts to keep our little corner of the world turning. Hope my small note will generate a warm smile until the time when a heartfelt handshake or hug will be delivered.”

Paul Maxwell, San Diego: “Hey Operators I’m a Paramedic in San Diego and you are my hero! Thanks for stepping up!”

Martie Hatcher, Carlsbad: “Please let your families know that they are so appreciated for this gift of you. I know they really miss your hugs, smiles, laughter and company!! On behalf of my husband and I, ‘Tussen tac,’ Norwegian for ‘a thousand thanks!”‘

Melanie, Carlsbad: “The world is better for having people like you in it.”

Another group of employees stands ready to relieve the ten workers later this week when their 21-day commitment ends.

The San Diego County Water Authority purchases up to 56,000 acre-feet of water from the Carlsbad plant per year – enough to serve approximately 400,000 people annually. The plant is a major component of the Water Authority’s multi-decade strategy to diversify the county’s water supply portfolio and minimize vulnerability to drought or other water supply emergencies.

Upgrade For Desalination Project As It Plans Private Note Placement

Poseidon Resources received a one-notch upgrade to BBB from Fitch Ratings ahead of plans to privately place a $45 million note to finance construction of a new intake system for its desalination plant in Carlsbad, California.

Bank of America Merrill Lynch won the right to purchase the three-year note, expected to close in November, according to sources close to the deal.

San Diego regional water quality regulators issued a new permit for the development of permanent, stand-alone seawater intake and discharge facilities at the Carlsbad Desalination Plant. Photo: Water Authority

Fitch Boosts Desalination Plant Bond Rating

Bonds from the Carlsbad Desalination Plant and pipeline were upgraded to BBB and given a stable outlook in a new report from Fitch Ratings, affirming the project’s sound management and its ability to provide a stable, reliable source of drinking water to the San Diego region.

As the largest, most technologically advanced and energy-efficient plant of its kind in the nation, the Claude “Bud” Lewis Carlsbad Desalination Plant’s stability stems from an effective collaboration between Poseidon Water and the San Diego County Water Authority.

That partnership will continue under a transfer of ownership from Orion Water Partners to Aberdeen Standard Investments approved Thursday by the Water Authority’s Board of Directors. The transfer – made public in June – will not alter day-to-day operations at the Carlsbad facility or create a fiscal impact to the Water Authority.

Poseidon Water continues to manage desalination facility

The plant will remain governed by terms of the 2012 Water Purchase Agreement between Poseidon Water and the Water Authority. That 30-year agreement requires Poseidon to obtain the Water Authority’s written consent of the transaction and to reimburse the Water Authority for its costs related to consideration of the consent request. Under the WPA, the Water Authority agreed to purchase between 48,000 acre-feet and 56,000 acre-feet of water from the desalination plant each year at a price established by the contract.  At the end of the 30-year term the Water Authority can assume facility ownership for $1.

“We are honored that maintaining Poseidon Water as the facility manager was integral to the Water Authority’s approval of the ownership transfer and by the Water Authority’s acknowledgement of our exemplary stewardship of this valuable resource,” said Carlos Riva, CEO of Poseidon Water. “We look forward to working alongside our new partners to continue providing the San Diego region with a climate-resilient drinking water supply and ensuring the plant continues its strong operations.”

Desalination plant is ‘hedge against drought’

Water Authority Board Chair Jim Madaffer said the desalination plant is a valuable asset that provides high-quality water, a hedge against drought and insurance against earthquakes that could disrupt imported water deliveries. “With more than 50 billion gallons of water produced and counting, the Carlsbad plant is a critical part of our region’s infrastructure – and we don’t expect the sale to change that in any way,” he said. “In fact, we anticipate many more years of productive partnering with Poseidon.”

The Carlsbad Desalination Plant has met approximately 10% of the San Diego region’s water needs. The planned construction of new, technologically advanced and environmentally sensitive intake and discharge facilities will further enhance operations.

Higher ratings expected to save ratepayers money

Plant partners also praised the improved ratings for the desal plant and the associated pipeline by Fitch Ratings, which upgraded bonds from BBB- to BBB based on the plant’s strong operational record, updated financing projections for capital improvements, and Fitch’s expectation that the positive trend in financial and operational performance will continue.

Also this week, Moody’s affirmed its Baa3 rating for the plant and pipeline bonds. When those bonds are refinanced, higher ratings are expected to save ratepayers money by lowering the interest rate paid on the debt.

Since its inception as a public-private partnership, the Carlsbad facility has received numerous national and international awards.

The P3 approach allowed the Water Authority to develop new, capital-intensive, public-serving infrastructure without incurring debt or negatively affecting bond ratings, a fact recognized in 2016 when S&P raised the Water Authority’s credit rating to AAA citing, in part, the successful delivery of the Carlsbad facility.