Poseidon Carlsbad: Desalination and the San Diego County Water Authority

Extreme drought conditions in California have significant impacts on the ability of the San Diego County Water Authority to provide adequate water for current users. Water shortfalls also could curtail the economic development of one of the fastest growing regions in America. Seawater desalination is expensive and energy intensive, but it could be a partial solution. Brian Brady and other members of the Authority need to vote for or against a financing and construction plan that includes a 30-year water purchase agreement with Poseidon Resources (Channelside) LP, a private company. In the early years the cost of water would be almost double the average unit cost the Authority pays at the time of the decision. Is this proposal good policy in the long run to lock in supply and price for 7% of the region's water needs? Is the private finance and provision of public infrastructure appropriate for a basic good like water? The case also investigates the allocation of water supply and usage in California and the environmental impacts of running this plant on electricity drawn from the local utility, which in San Diego County is about 65% from fossil sources. The case is intended to be used as an introduction to water policy, seawater desalination, bond finance and cash flow waterfalls, infrastructure as a foundation for economic development, and risk allocation in public-private partnerships.