Carlsbad Desalination Plant Aerial 1

Carlsbad Desalination Project Aerial (Plant & Pipeline) 2 Desal Conveyance Pipeline 10-miles of new 54-inch pipe Desal Conveyance Pipeline 10-miles of new 54-inch pipe Pipeline 3 Relining (27,100 feet) Pipeline 3 Relining (27,100 feet) TOVWTP Improvements Desalination Plant Aqueduct Connection Facilities Aqueduct Connection Facilities

Carlsbad Desalination Project Components 3 Poseidon to Construct:  50 MGD desalination plant located on the site of the Encina Power Station  10 mile 54-inch diameter conveyance pipeline  Connection to Water Authority aqueduct Pipeline 3 Water Authority to Construct:  Relining of 5.5 mile reach of Pipeline 3  Improvements at the TOVWTP to accommodate desalinated water flows

General Responsibilities 4 Poseidon:  Permit, Design and Build the Desal Plant  Permit, Design and Build the Product Water Pipeline  Own, Operate and Maintain the Desal Plant  Supply Product Water Water Authority:  “Take or Pay” for Product Water (minimum commitment of 48,000 AF/Yr)  Timely Construction of TOVWTP Improvements and Pipeline 3 Rehabilitation  Receive Product Water  Own, Operate and Maintain the Product Water Pipeline, the TOVWTP Improvements and Pipeline 3

Project Structure 5 Developer/Owner of the Plant  Poseidon Resources (Channelside) LP  Plant financed through a combination of debt and equity Debt provided through tax-exempt Private Activity Bonds (PAB’s) Equity provided by Stonepeak Construction/Operation of the Plant  Contractor – Joint venture of Kiewit Infrastructure West and J.F. Shea Construction  IDE Technologies is process technology provider  Plant Operations and Maintenance also provided by IDE

Project Risk Allocation 6 Risk DescriptionPoseidonWater Authority Financing Risk– that the project can attract capital (debt & equity) and raise sufficient funds to finance the construction X Construction Risk – that facility is not completed on time, on cost and according to design standards X Permitting Risk – that current permit and environmental mitigation requirements increase X Debt Rate Risk – that market debt rates fluctuate from the currently assumed rates prior to financial closing X Change in Law Risk – that future unanticipated laws or regulations increase operating costs XX Technology Risk – that the plant technology does not perform as expected X Output Risk – that the plant produces less than the projected volume of water X Operating Margin Risk – that the price of water is not adequate to generate enough revenue to pay expenditures or may increase more than projected XCPI Pipeline Operating Risk – the Pipeline connecting the Plant to the regional aqueduct system and appurtenant facilities transport acceptable water to Water Authority wholesale customers X Electricity – the cost of electricity is accounted for in the water price X (Electricity Consumption) X (Electricity Price)

Financing 7 Project Financing Structure:  82% funded through Bonds issued via the California Pollution Control Financing Authority (CPCFA) o Plant Bonds issued as Tax-Exempt Private Activity Bonds with Poseidon as the sponsor Subject to Alternative Minimum Tax (AMT) o Pipeline Bonds issued as Tax-Exempt Governmental Purpose Bonds with the Water Authority as the sponsor Not subject to the AMT, but issued with a 5 year early call option Water Authority exempt from repayment obligations if Poseidon does not perform  18% Cash Equity from Stonepeak Infrastructure o Equity invested after debt proceeds are spent; but equity commitment is secured from closing by a letter of credit

Carlsbad Project Unit Costs (December 2012 $/AF) 48,000 56,000 AF/Yr Plant (Capital, O&M, & Electricity)$1,869$1,682 Pipeline (Debt Service)$197$169 Total Unit Cost *$2,066$1,851 * This unit cost represents the direct costs that are accounted for in the Water Purchase Agreement between Poseidon and the Water Authority in December 2012 dollars. They exclude any indirect costs that the Water Authority may incur for the Pipeline 3 and the Twin Oaks Valley Water Treatment Plant improvements.

Impact of Desal Water on San Diego Retail Rates 9 Estimated Retail Impact of Carlsbad Desalination if Applied to CY 2013 Rates (below analysis done in October 2012, prior to closing):  Estimated rate impact as Water Authority supplies: o Based on high range of Carlsbad seawater desalination costs o Based on conservative 2013 sales of 466,000 AF First year of operation sales (2016) projected at 520,000 AF o 5 Retail Agency Average Composite Cost (CY 2012) Fixed Charge $ Commodity Charge $51.40 = Composite Monthly Bill: $71.23 Other Water Authority Notes: 1. Analysis based on retail rates for the City of Carlsbad, Helix Water District, the City of San Diego, Sweetwater Authority, and Otay Water District. 2. Tier 1 and Tier 2 pricing blocks vary by member agency. 3. Historic total water demand used to calculate member agency specific weighting factors. 4. Individual member agency commodity charge calculated using its average single family residential water use (hcf). 5. Composite commodity charge is the sum of the individual member agency's commodity charge times its weighting factor. Estimated All-in Unit Cost (48,000 – 56,000 AF/yr)* Estimated Rate Impact Monthly Retail Cost Percent Retail Impact $2,290 - $2,041$7 - $510% - 7% * Includes both direct costs billed by Poseidon and indirect costs incurred by the Water Authority outside of the agreement with Poseidon. Actual rate impact will vary by member agency.

Huntington Beach Desalination Plant Proposed Project 10

11 Flow Schematic Re-using existing industrial facilities Intake/outfall facilities

Partnering Cities / Water Agencies Municipal Water District of OCCity of Huntington Beach Irvine Ranch Water DistrictCity of Anaheim Moulton Niguel Water DistrictCity of Newport Beach South Coast Water DistrictCity of Santa Ana Santa Margarita Water District City of Garden Grove Orange County Water District City of Fountain Valley El Toro Water District City of Orange Emerald Bay Water DistrictCity of Fullerton Laguna Beach County Water District City of Westminster Mesa Consolidated Water DistrictCity of Seal Beach Trabuco Canyon Water District Golden State Water Company East Orange County Water District 12

Water Reliability Agreement – Term Sheet  WRA term sheet developed over past year; Final draft provided to Working Group in January  Term Sheet to support non-binding Letters of Intent (“LOI”) to purchase water  Term Sheet includes estimated unit costs for desalination plant and distribution system 13

WRA Draft Term Sheet – Key Terms  Roles and Responsibilities  Poseidon: – Own, design, permit, finance, construct, start-up, acceptance test, and operate the Project – Design, permit, finance and construct any new pipelines for the Delivery System  Buyer(s): own and operate the new pipelines in the Delivery System; purchase Product Water as provided for under the Contract and accept delivery of the Product Water at the Delivery Point.  Delivery point defined as boundary line of the project site  30-year “take if delivered” contract 14

WRA Term Sheet – Estimated Pricing 15

Public Support (Partial List)  City of Huntington Beach  City of Buena Park  City of Dana Point  City of Laguna Hills  City of Laguna Niguel  City of Laguna Woods  City of La Palma  City of Mission Viejo  City of Orange  City of Placentia  City of Rancho Santa Margarita  City of San Juan Capistrano  City of Stanton  City of Tustin  City of Villa Park  City of Aliso Viejo  City of La Habra  Orange County Sacramento legislative delegation  The Orange County League of Cities  Metropolitan Water District of Southern California  Municipal Water District of Orange County  California Latino Water Coalition  California Chamber of Commerce  CA Hispanic Chamber of Commerce  Huntington Beach Chamber of Commerce  The Orange County Board of Supervisors  The Orange County Business Council  The Orange County Taxpayers Association  The LA-OC Building & Construction Trades Council  California Coastal Coalition 16

Development Schedule  Permitting – Coastal Commission hearing mid-2013  Water Purchase Agreements – Non-binding Letters of Intent (“LOI”) approved by buyer(s) before end of April – Executed agreements - end of 2013  Plant Construction – 2014 Start 17