Carlsbad Desalination Project Status Update Bob Yamada, San Diego County Water Authority Welcome! 5th annual Blue Tech & Blue Economy Summit Desalination & Clean Water Technologies – Worldwide Industry

Water Authority Background Wholesale water agency created by State Legislature in 1944 36-member Board of Directors 24 Member Agencies including Camp Pendleton Serves 3.2 million people and region’s $188 billion economy Service Area 950,000 acres 97% of county population

TAF=Thousand Acre-Feet Increasing San Diego County's Water Supply Reliability through Supply Diversification 1991 28 TAF 5% 2013 550 TAF 95% 2020 71 TAF 11% 80 TAF 10% 103 TAF 13% 80 TAF 13% 27 TAF 4% 44 TAF 6% Total = 578 TAF 56 TAF 7% 103 TAF 16% 21 TAF 3% 190 TAF 24% 27 TAF 4% 46 TAF 7% 297 TAF 46% 231 TAF 30% 48 TAF 6% Total = 645 TAF Total = 779 TAF Metropolitan Water District Recycled Water Imperial Irrigation District Transfer Seawater Desalination All American & Coachella Canal Lining Groundwater Conservation (existing and additional) Local Surface Water TAF=Thousand Acre-Feet

Sources of San Diego County’s Water Supply* LAKE SHASTA OROVILLE San Diego County currently imports ~70% of its water supply State Water Project (Bay-Delta) 23% Colorado River 51% Most of our water currently comes from sources hundreds of miles away. The exact mix varies from year to year, due to hydrologic conditions both locally and outside of Southern California. Historically, Colorado River supplies have accounted for at least half of our total supply. The remainder is made up of local supply projects or offset by water conservation. *This slide is based on water deliveries. Differences between this and the pie chart slide(based on water use) are based on prior year stored imported water. Previously stored imported water would have come from prior year deliveries, and would have a different CRA/SWP split. This is why water use was not used to calculate annual split. Local Supplies and Conservation 26% *Based on FY 13 annual reconciliation data 4

Seawater Desalination as a Resource Strategy to Providing Supply Reliability New, local water supply Reduces need for imported water Drought-proof supply Improved water quality More expensive than existing imported supplies Cost on par with other new, local water supplies Enhances regional supply reliability and local control

Carlsbad Desalination Project – Under Construction 50 million gallon per day seawater desalination project Largest seawater desalination facility in the Western Hemisphere On-line by early 2016 Site Grading

Carlsbad Desalination Project Mouth of Lagoon Outfall Intake

Carlsbad Desalination Project

Carlsbad Desalination Project Key Permits: California Department of Public Health Wholesale Drinking Water Permit California Coastal Commission Coastal Development Permit State Lands Commission Amendment to Intake and Outfall Lease Regional Water Quality Control Board NPDES Permit and Waste Discharge Requirements City of Carlsbad Environmental Impact Report, Precise Development Permit, Redevelopment Permit, Habitat Management Plan Permit, Coastal Development Permit (pipeline), Development Agreement, and Specific Plan Amendment  

Major Permit Conditions & Environmental Mitigation Primary Impacts Impingement and entrainment associated with ocean water intake when Power Plant no longer operating Greenhouse gas emissions associated with electricity consumption Greenhouse Gas Mitigation Net greenhouse gas impacts from the Project will be offset through implementation of an Energy Minimization and Greenhouse Gas Reduction Plan by Poseidon Purchase of carbon offsets Use of most efficient energy recovery and other technology 11

Environmental Mitigation Marine Life Mitigation Based on stand-alone operation absent the Power Plant using ocean water for cooling Coastal Commission requires 66 acres of wetlands restoration as part of compliance with the Commission approved Marine Life Mitigation Plan 12

Carlsbad Desalination Project Delivery System 4/19/2017 3:45 AM Carlsbad Desalination Project Delivery System Desal Conveyance Pipeline 10-miles of new 54-inch pipe Pipeline 3 Relining (27,100 feet) TOVWTP Improvements Desalination Plant Aqueduct Connection Facilities

Project Components Carlsbad Pacific Ocean San Marcos Pipeline 3 TOVWTP TOVWTP Improvements P3 relining 5-miles Carlsbad Pacific Ocean New 54-inch steel pipe 10-miles Desal WTP Pipeline Interconnection Encina Power Station San Marcos Pipeline 3 Pipeline 4 14 14

Project Structure – Desalination Plant Developer/Owner Poseidon Resources Construction/Operation of the Plant WPA between Water Authority and Poseidon Contractor – Kiewit/Shea Desalination IDE Technologies is process technology provider Plant operations and Maintenance also provided by IDE

Project Structure – Conveyance Pipeline 4/19/2017 3:45 AM Project Structure – Conveyance Pipeline Owner/Operator Water Authority Construction of Pipeline DBA between Water Authority and Poseidon Contractor – Kiewit Shea Desalination

Carlsbad Desalination Project Water Purchase Agreement (WPA) WPA outlines commercial and financial terms for production and delivery of water Establishes risk transfer to private developer Outlines terms of potential purchase of plant by Water Authority Water Authority Board approved WPA on Nov 29, 2012 Board initially approved a term-sheet in 2010 as basis for negotiations Water Authority conducted comprehensive project and financial due diligence effort prior to approval of the WPA

WPA - Ratepayer Protection Risk Transfer to Poseidon/Contractor team Permitting Design liability Cost overruns Operation (e.g., if the plant never operates, the Water Authority does not pay) Water Authority can reject water if it does not meet water quality requirements per the WPA Price certainty throughout WPA term Cost increases are specified Electricity consumption guaranteed by Poseidon Electricity price is a Water Authority risk Buy-out provisions after 10 years of operation Transfer to public ownership at the end of the 30 year agreement

Poseidon Resources General Responsibilities Permit, Design and Build the Desal Plant Permit, Design and Build the Conveyance Pipeline (design-build agreement) Own, operate and maintain the Desal Plant Supply Product Water that meets water quality requirements

Water Authority General Responsibilities Timely Construction of TOVWTP Improvements and Pipeline 3 Rehabilitation Own, operate and maintain the Conveyance Pipeline, the TOVWTP Improvements and Pipeline 3 “Take or Pay” for Product Water if it meets specifications (minimum commitment of 48,000 AF/Year)

Total Project Costs (2012 dollars) Total Capital Cost Total O&M Costs (Plant and Pipeline) $49 - $54 million annually Total Unit Cost 1 Total desalination plant $537 million Total conveyance pipeline $159 million Financing costs $227 million Water Authority improvements and oversight $80 million Total Capital Costs $1.003 billion   56,000 acre feet per year 48,000 acre feet per year $2,014/AF $2,257/AF 1Includes debt service, operations, Water Authority construction oversight and administrative costs

Project Financing Structure 82% funded through Bonds issued via the California Pollution Control Financing Authority Plant Bonds issued as Tax-Exempt Private Activity Bonds with Poseidon as sponsor Pipeline Bonds issued as Tax-Exempt Governmental Purpose Bonds with the Water Authority as sponsor Bonds sold on December 24, 2012 Interest rate 4.78% 18% Cash Equity from Stonepeak Infrastructure

Price Increases Under WPA Unit costs set and can only increase consistent with WPA provisions Annual operating cost increases generally tied to rate of inflation Price may also increase due to unanticipated changes in law or regulations Changes generally apply industry-wide Cannot exceed 10% in single-year or maximum 30% increase over 30-year term Future intake modifications factored in Post power plant stand-alone operation Costs capped at $20 million (2010 dollars)