Moss Landing Seawater Desalination Project
Summary of Proposed Terms
Project: Design, build and operate (“DBO”) a seawater desalination plant at Moss Landing, California producing not less than10,000 acre-feet (“AF”) per year of potable water (“Project Water”) at a rate of up to 25million gallons per day (“MGD”) for beneficial use by designated water purveyors in Monterey and Santa Cruz Counties (the "Project"). The Project will include wholesale conveyance facilities necessary to deliver water to connections with the purveyors’ distribution systems.
Owner: A California Joint Powers Authority (“JPA”) among governmental entities within Monterey and Santa Cruz Counties. Potential members of the JPA will execute a Memorandum of Understanding (“MOU”) allowing them to jointly explore potential participation in the Project on a non-risk basis. If participation proves warranted on a case-by-case basis, members will have the opportunity to subscribe for an allocated share of Project Water. (See “Subscription Contracts” below.)
Site: The desalination facility will be located in existing structures north of Moss Landing Harbor which will be leased by the JPA. (See “Plant Site Ground Lease” under “Project Contracts,” below.) The JPA will rebuild the Sandholdt Marine Research Pier (the “Pier”) at Moss Landing under agreement with the California State University System's Moss Landing Marine Labs ("CSU"), which will hold title to the Pier. Seawater intake and brine discharge lines will be attached to the Pier under a long-term lease from CSU. (See “Pier Access Lease” under “Project Contracts,” below.) CSU received conditional approval to rebuild the Pier from the California Coastal Commission in 2004. The Pier will be approximately 500 feet in length. Intake and discharge pipelines will extend underwater from the end of the Pier to the edge of the undersea Monterey Canyon. Taking seawater from below the photic zone (the depth of light penetration), will minimize marine life disruption and will provide consistent source water of high quality and low turbidity. Accessing the deep water Monterey Canyon translates into lower pre-treatment costs and overall lower operating costs than for near-surface or brackish water sources of comparable temperature. Similarly, discharging concentrated seawater into Monterey Canyon following the desalination process substantially eliminates detrimental impacts on the ocean environment.
DeepWater Desal: Pursuant to a project development contract, DeepWater Desal, LLC will manage design, environmental review, permitting and development of a bid package for the final design and construction of the Project. (See “Project Development Contract” under “Project Contracts,” below.)
Predevelopment Costs: DeepWater Desal will advance funds necessary to (i) study and evaluate the probable costs and benefits of the Project; (ii) obtain necessary discretionary permits to construct and operate the Project; (iii) assist with organizational expenses of the JPA, and (iv) prepare the Project bid package and pre-qualify potential Design/Build Contractors. DeepWater Desal will be solely at risk for predevelopment expenses related to the Project (including expenses incurred to date). If and only if the JPA issues Project Revenue Bonds (see the accompanying Project Revenue Bonds Summary) to finance the Project, the JPA will reimburse DeepWater Desal for such predevelopment, permitting, organizational and preliminary design expenses (collectively, "Predevelopment Costs") out of the proceeds of sale. Unless and until the JPA is established by resolution of its respective members and issues its Project Revenue Bonds, no prospective member of the inchoate JPA will be liable for payment of or reimbursement for any such Predevelopment Costs. Nothing contained in the proposed MOU will obligate any signatory to execute either (i) an eventual Joint Powers Agreement or (ii) a Subscription Contract (defined below).
Project Costs: The Project will be designed and built for a total cost currently estimated at $__________. The total cost is the aggregate of:
· Engineering, preliminary design, project management and development fees and expenses (currently estimated at $_________);
· Environmental review, mitigation and other costs related to compliance with to the California Environmental Quality Act (“CEQA”) including preparation of an Environmental Impact Report (“EIR”) ($_______);
· Permit acquisition, compliance and maintenance expense through Project delivery and acceptance in accordance with the descriptions in the Project’s EIR ($_______);
· Pre-construction testing and demonstrations ($_________);
· Constructing and equipping the desalination plant, and ancillary facilities, including initial disposables required for plant operation ($_________);
· Project commissioning, shake-down, testing and performance demonstration costs ($________); and
· Financing costs (including capitalized interest, working capital, interest during construction, funded debt service and rate stabilization reserves, fees and expenses of the independent financial advisor, underwriters, bond counsel, disclosure counsel, independent engineer, rating agencies and other financing professionals).
Project Contracts: Primary Project Contracts include:
· A Joint Powers Agreement among governmental entities in Monterey and Santa Cruz Counties who will self-select based on their mutual interest in developing the Project. The Joint Powers Agreement will establish the relationships among and respective obligations of such entities.
· A Project Development Contract between DeepWater Desal and the JPA obligating DeepWater Desal to manage development of the Project, subject to periodic reporting to and direction from the JPA. Under the Project Development Contract, DeepWater Desal will assume responsibility for (i) developing the preliminary design, engineering, and performance specifications for the Project (subject to review and approval by the JPA), and (ii) managing the Project in accordance with the scope, schedule and budget approved by the JPA. Further, DeepWater Desal will oversee value engineering, construction, quality management, warranties, and coordination among all parties involved with the Project under the overall direction of the JPA.
· One or more design/build contract(s) (“Design/Build Contract(s)”) between the JPA and one or more qualified, experienced, financially capable contractor(s) (“Contractor(s)”) selected through a competitive and transparent bidding process. The Design/Build Contract(s) will specify (i) a maximum price, (ii) specified minimum performance criteria, (iii) appropriate warranties and post-delivery service responsibilities, and (iv) an “on or before” delivery date (“Completion Date”) for each contracted component of the overall Project. The Design/Build Contract(s) will (i) provide both incentives and penalties around each material performance benchmark, (ii) provide for final design in conformance to the preliminary design (including procedures for proposing, evaluating and gaining approval for deviations and value engineering) and (ii) specify the performance demonstration, commissioning and acceptance regimes to be followed upon substantial completion of construction.
· One or more Contract Guaranties between and among the the Contractor(s), the JPA and insurers, banks or other financial companies (“Construction Guarantors”) under which each respective Construction Guarantor will provide financial surety for the performance by the related entity of its obligations under its agreement or contract. The claims paying capacity of each Contract Guarantors must be rated not less than “A” by a national credit rating agency.
· Ground Leases:
o between MFJK Partnership as landlord of the plant site ("Plant Site Ground Lease") and the JPA as tenant. DeepWater Desal will acquire and assign to the JPA the right to enter into the Plant Site Ground Lease. The Plant Site Ground Lease will accommodate the construction, operation, maintenance, renewal and replacement of the desal plant for a period of five years beyond the final maturity of Project Revenue Bonds, with at least one renewal option. Monthly rental payments under the Plant Site Ground Lease will be subordinated to the JPA’s bonded debt service obligations. Plant Site Ground Lease payments deferred on account of such subordination will accrue interest at six percent (6%) per annum until paid. The Plant Site Ground Lease will not permit either acceleration or dispossession in the event of payment deferral (thus creating quasi equity support for the Project)
o between CSU as landlord for the Pier access site (the "Pier Access Lease") and the JPA as tenant. DeepWater Desal will acquire and assign to the JPA the right to enter into the Pier Access Lease. The Pier Access Lease will provide intake/outfall access for the Project (including maintenance, renewal and replacement) to the deep water of Monterey Canyon off Moss Landing at a point below the photic zone via pipelines to be constructed as part of the Project and attached to the Pier. Periodic Pier Access Lease payments due to CSU from the JPA will be equal to, simultaneous with, and directly offset by CSU repayments to the JPA of the cost of constructing the Pier; that is the lease payments and construction cost repayments will net zero.
· An Operation & Maintenance Contract between Deepwater Desal (or its designated subsidiary or affiliate) and the JPA under which DeepWater Desal will assume responsibility for operating the Project according to specified quality/quantity/rate of delivery/cost criteria. The initial term of the Operation & Maintenance Contract will be 20 years, subject to competitive renewal thereafter. Payments under the Operation & Maintenance Contract will be itemized and designated as either (i) Direct Operating Expenses (including labor, power, materials, etc.), (ii) Renewal, Replacement and Maintenance Deposits, or (iii) O&M Fee. The O&M Fee will be subordinated to the JPA’s debt service obligations. O&M Fee payments deferred on account of such subordination will accrue interest at % per annum until paid.
· A series of Subscription Contracts among the JPA, the Bond Trustee (defined below; see “Financing”) and JPA member agencies (“Subscribers”) under which the Subscribers (i) subscribe for shares of the Project Water and (ii) accept the obligation to pay proportional
o debt service,
o operation & maintenance obligations, and
o payments under the Ground Leases.
Upon satisfactory completion, testing and delivery of the Project by the Contractor(s) and acceptance of the Project by the JPA, each Subscriber will be obligated to set, impose and collect rates and charges sufficient to pay amounts due under its Subscription Contract and to remit such payments to the Bond Trustee on a monthly basis. Each of the Subscription Contracts will specify delivery points, metering regimes, rates of flow, etc. and will obligate the Subscriber to put in place facilities to convey Project Water from the point of delivery to its service area not later than the Completion Date. The initial term of the Subscription Contracts will be equal to or beyond the longest maturity of Project-Revenue Bonds.
· One or more Power Purchase Agreement(s) between the JPA and one or more power suppliers will be negotiated and executed prior to Project acceptance. The cost of purchased power to operate the Project will be a “pass through” cost under the Operation & Maintenance Contract and the Subscription Contracts. The Power Purchase Agreements will not be in place at the time of financing and will not likely have long terms; thus, the Subscribers will be exposed to fluctuations in the cost of power required to operate the Project.
Permits: The JPA, CSU and DeepWater Desal will cooperate in acquiring the necessary construction and operating permits for the Project as set forth on Attachment 1. Costs of acquiring such permits will be advanced by DeepWater Desal pursuant to terms of the Project Development Contract, subject to reimbursement from bond proceeds.
Environmental Review: Monterey County will act as lead agency for CEQA compliance purposes. Costs associated with the CEQA process will be funded by DeepWater Desal, subject to reimbursement from bond proceeds.
Distribution Facilities: As specified in the Subscription Contracts, each Subscriber will be responsible for maintaining distribution facilities sufficient to make use of Project Water within its service area.
Surplus Water: In the event that Project Water, together with other water resources available to a Subscriber is, in any period, in excess of the contemporaneous demands of such Subscriber, the Subscriber will have the right to store such Surplus Water for later use or to market such Surplus Water to any other water user on terms mutually satisfactory to the Subscribers and the other water user, provided, however, that (i) such transfer will be registered with the JPA in accordance with administrative and record-keeping procedures to be adopted by the JPA, (ii) the transferring Subscriber will bear financial responsibility for the marginal costs and impacts (including environmental review) of the transfer (if any), (iii) such transfer will have no effect on the Subscriber’s payment obligation under its Subscription Contract, and (iv) such transfer will avoid or fully mitigate any negative tax consequences to the JPA, to other Subscribers, or to holders of the Project Revenue Bonds..
 An acre-foot equals 325,851 gallons, enough water to cover a football field to a depth of one foot, or enough water to serve the potable water demands of three to four average Monterey area households for a year.
 Only members of the JPA which ultimately execute Subscription Contracts will become obligated to take and pay for Project Water. There is no debt service obligation associated with membership in the JPA. Thus, members may join the JPA and defer the decision of whether to become a Subscriber pending further investigation.