24 Oct 2012

SDCWA must be desperate if they're this stupid

An update from my post yesterday:

The San Diego County Water Authority (SDCWA) responded to a letter [pdf] from the Independent Rate Oversight Committee (IROC) by writing a pleading letter [pdf] to their sugar daddy, the Mayor of San Diego (and fan of desalination), Jerry Sanders.

In their letter, SDCWA makes some astonishing statements:
Q: Many of the details of the proposed agreement were not yet available

All terms of the proposed Carlsbad Desalination Project Public-Private Partnership are delineated in exacting detail in the Water Purchase Agreement (WPA).
Not quite. The WPA has LOTS of words, but those words do not specify the implications of what happens if various problems arise. FAIL.
Q: ...the Public Utilities Department (PUD) did not have enough information on the proposed agreement to be able to provide IROC with more than a vague estimate of the impact on San Diego water ratepayers.

...the Water Authority Board of Directors is expected to approve at its November meeting the selection of a firm to prepare a Cost of Service Study as part of its 2014 rate-setting process. Therefore, if the Board approves the WPA [on 29 Nov 2012], it will also provide direction for incorporating the cost of desalination into the rate structure, which will be evaluated during the Cost of Service Study... The Cost of Service Study for the 2014 rates will be completed by May 31, 2013, and the study will also determine the allocation of costs for the desalination project, which will be incorporated into the rate structure and added to rates and charges in fiscal year 2015-2016.
So, wait. SDCWA will sign the WPA in 2012 and then inform its member agencies (including the City of San Diego) how it will allocate the $3.2 billion in costs from desalination in 2013? That's a pretty interesting order of doing things! MASSIVE FAIL.
Q: Investors are demanding a very high rate of return to finance this project....

For the Carlsbad desalination project, the Water Authority has targeted a 9.45 percent internal rate of return for the Equity Return Charge component of the water unit price. It is important to note that 82% of the project’s capital cost will be financed through tax exempt Private Activity Bonds and Municipal Purpose Bonds as a direct pass through to the Water Authority at currently historic low interest rates to the benefit of all ratepayers. No profit is earned on this portion of the project’s financing. Poseidon’s return on investment may be higher or lower depending upon their performance and efficiency. If the project is completed on time and budget, if it consistently meets the Water Authority’s demand for desalinated water, and if it is operated efficiently, we estimate Poseidon could achieve an actual return between 10 percent and 13 percent.
That seems a pretty good return to me, given that Poseidon will neither design, build nor operate a project that has a guaranteed income over 30 years. What's the yield on your savings account now? 0.25 percent? Why is Poseidon getting 10-13 percent selling water to SDCWA? FAIL

Bottom Line: It's not illegal to sign a stupid contract, but it will cost you.

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