November 15, 2002

Water Authority Board Approves Desalination Term Sheet

The San Diego County Water Authority board of directors today took another step toward the development of the region’s first large-scale seawater desalination project. The approval of a term sheet with Poseidon Resources Corporation could lead to the development of the largest desalination project in the Western Hemisphere.

The term sheet, a summary of key terms and conditions, provides the basis for development of a 50-million-gallon-per-day seawater desalination plant located adjacent to the Encina Power Station in Carlsbad. The term sheet does not obligate the Water Authority to move forward, but provides the basis for a future detailed agreement needed to continue development of the project. The Water Authority board is expected to review the terms of a final detailed agreement in early 2003.

“This is a major step forward in the development of a new, high-quality, drought-proof supply of water for San Diego,” said Jim Turner, Water Authority board chairman. “The approval of the term sheet will allow the Water Authority to begin detailed negotiations with owners of the power station and Poseidon on the this critically important water project.”

The Encina Power Station is owned and operated by Cabrillo Power I LLC. Poseidon has been developing the project since 1998 and has an existing contractual relationship with Cabrillo giving it exclusive rights to develop a seawater desalination facility at the Encina Power Station site.

Seawater desalination was identified in the Water Authority’s 2000 Urban Water Management Plan as a significant source of new water supply for the region. The Carlsbad Seawater Desalination Project would consist of a reverse osmosis desalination plant producing 56,000 acre-feet of water per year, enough to meet the needs of 112,000 households in San Diego County.

The term sheet sets the baseline price of water produced by the plant at $794 per acre-foot in 2001 dollars. Funding expected from the Metropolitan Water District of Southern California (MWD), through its Seawater Desalination Program, could provide a subsidy of $250 per acre-foot, which would further reduce the cost of water to the Water Authority. A decision is expected in December by the MWD board to enter into negotiations on project funding.

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