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South Orange Coastal Ocean Desalination (SOCOD) Project, Ocean Desalination Costs and Recent

Public Opinions

November 2011Status Update

Karl Seckel, Assistant General ManagerMunicipal Water District of Orange County

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Goals of Current Work Tasks• Conduct studies and evaluations and report to the five

Participating Entities on the prospective nature of developing an ocean desalination project at Doheny Beach

• Assist the five Participating agencies in understanding and making decisions regarding the project

• Look for outside funding to take the burden off of the local agencies

• Use the Pilot Plant work to understand the issues prior to implementation of the full scale project

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Why Ocean Desalination?• A local opportunity• Improves SYSTEM and SUPPLY reliability• Cost competitive with imported water• Environmentally friendly concept• At this location, many factors support the project:

Right geology Existing Land Ability to use a subsurface intake Integration of the water into the existing system is easy Need for reliability improvement is there

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South Orange Coastal Ocean Desalination

Project

• 15 million gallons per day meets about 25% of the 2025 water demands for:

1. Laguna Beach2. San Clemente3. San Juan Capistrano4. Moulton Niguel WD5. South Coast WD

• All five agencies can physically receive the water into their systems

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5

4

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2

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South Orange Coastal Ocean Desalination

Project

Concept Project Layout

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Test Slant Well Schematic

Ocean SurfaceLand Surface

Fres

h Wat

er

325 feet

Test Slant Well

Infiltration

Drill Rig

Ocean BottomMain Aquifer 40 to 130 feet ±

Salt

Wat

er

23o 350 feet ±

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Slant Well TDS* and Total Iron

Land Surface

Fresh Water

Infiltration

Salt Water

“young” marine groundwater

“young-midage” brackish groundwater

Low 14-Carbon, Tritium Absent, High Ra isotopes

Intermediate 14-Carbon, Low Tritium

& Ra isotopes

Slant Well

High 14-Carbon & Tritium, Intermediate Ra isotopes

Monitoring Well

“old” marinegroundwater

Groundwater Fingerprinting and Age Dating

Radium Isotopes224Ra = 3.66 days223Ra = 11.4 days228Ra = 5.75 yrs226Ra = 1600 yrs

999

View of Slant Well and Test Facility Site Doheny State Beach

Mobile Test Facility

Test Slant Well and Temp Outfall

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Reverse Osmosis Pilot Test System

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Corrosion and Microbial Flow Test Apparatus

What is the Cost of Ocean Desalination?

• Many factors to consider• Ocean Desalination has been done all over the

world• US Examples include Tampa Bay which is up and

operating• Also includes Carlsbad which hopes to go into

construction very soon• Grant Funding or Subsidies

– MET = $250 per AF– State Grant or Loan Interest Loans (2.6%)– Feds

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South Orange Coastal Ocean Desalination ProjectProject Cost vs Projected Imported Water Cost

2010 2015 2020 2025 2030 2035 2040 2045 20500

500

1000

1500

2000

2500

3000

3500

4000

4500

5000Avoided Imported Water Cost

(MET T1 + Capacity Charge + RTS)

Iron/Manganese (Fe/Mn) Pretreatment cost at $46M. Base cost of $190M escalated at mid-point of construction = $215M. MET, MWDOC and SDGE projected rates. Inflation after 2020 at 5% and Bond interest at 5% in 2016.

With Fe/MnPretreatment

No Fe/Mn Pretreatment20

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2017Net Project Cost Capital at $215M

$1830/AF -$250/AF$1580/AF

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22

20

26

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Impacts to Retail Water Costs

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• Estimated at $6 dollars per month per household assuming the agency receives 25% of its water from the plant

• Decisions regarding the project are not expected soley on unit cost comparisons between ocean desal water and imported water

• The value of reliability provides a large benefit• We are now testing an economic and financial model to

better understand the cost impacts and potential offsets for the project.

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Input Output

Fe/Mn Treatment? YesContingency 15%Start of Construction

Energy Esc. Rate 1.8%Land Cost per AF $45General Inflation Rate

2011 - 2015 2.5%2016 - 2019 3.0%

2020 - Future 3.0%

Grant AmountBond Repayment Select →Bond Interest Rate 5.00%PV Discount Rate 4.0%

Esc. Rate After 2020 3.0%Melded Rate- % Tier 1 100%DRAFT Long Range Finance Plan $/AFAs of January Treated T1 Treated T2

2012 $794 $9202013 $833 $969 Costs per AF 2011 First Year2014 $877 $1,020 Capital Cost (2011) $160,511,197 Capital Cost $752 $930 Up to Break Even ($32,128,185)2015 $920 $1,069 Grants $0 O&M $401 $513 Break Even to End $6,981,8122016 $970 $1,123 Contingency $24,076,680 Energy $466 $492 Total Savings ($25,146,372)2017 $1,023 $1,180 Total Cost (2011) $184,587,877 Annual Cost $1,619 $1,9352018 $1,079 $1,238 Total Cost $228,209,740 Annual Cost w/ Land $1,664 $1,9832019 $1,146 $1,301 Escalated to Midpt.2020 $1,214 $1,366 of Construction

Net Present Value

South Orange Coastal Desalination Project - Economic Analysis - DRAFT VERSION 1.2

Capital Cost

O&M Costs

Project Financing

MET Avoided Costs

Project Capital Costs

Break Even2037

Start Repayment2020

End Repayment2049

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010 2015 2020 2025 2030 2035 2040 2045 2050

$/AF

Year

Avoided Imported Water and Net Project Cost

Avoided Imported Water Cost(MET T1 + Capacity Charge + RTS)

Net Project Cost

2018

30

Example 1 - High Cost Low MET Rates

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Input Output

Fe/Mn Treatment? NoContingency 15%Start of Construction

Energy Esc. Rate 1.8%Land Cost per AF $45General Inflation Rate

2011 - 2015 2.5%2016 - 2019 3.0%

2020 - Future 3.0%

Grant AmountBond Repayment Select →Bond Interest Rate 4.00%PV Discount Rate 4.0%

Esc. Rate After 2020 5.0%Melded Rate- % Tier 1 100%DRAFT Long Range Finance Plan $/AFAs of January Treated T1 Treated T2

2012 $794 $9202013 $833 $969 Costs per AF 2011 First Year2014 $877 $1,020 Capital Cost (2011) $119,581,850 Capital Cost $498 $616 Up to Break Even ($623,440)2015 $920 $1,069 Grants $0 O&M $401 $513 Break Even to End $134,112,8282016 $970 $1,123 Contingency $17,937,278 Energy $466 $492 Total Savings $133,489,3882017 $1,023 $1,180 Total Cost (2011) $137,519,128 Annual Cost $1,365 $1,6212018 $1,079 $1,238 Total Cost $170,017,689 Annual Cost w/ Land $1,410 $1,6692019 $1,146 $1,301 Escalated to Midpt.2020 $1,214 $1,366 of Construction

Net Present Value

South Orange Coastal Desalination Project - Economic Analysis - DRAFT VERSION 1.2

Capital Cost

O&M Costs

Project Financing

MET Avoided Costs

Project Capital Costs

Break Even2021

Start Repayment2020

End Repayment2049

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010 2015 2020 2025 2030 2035 2040 2045 2050

$/AF

Year

Avoided Imported Water and Net Project Cost

Avoided Imported Water Cost(MET T1 + Capacity Charge + RTS)

Net Project Cost

2018

30

Example 2 - Low Cost High MET Rates

Ocean Desalination Costs Around the World ($/AF)

0

500

1000

1500

2000

2500

3000

3500

4000

Courtesy of Water Desalination Report; Presented at the Texas Innovative Water Workshop, San Antonio, Texas, October 11, 2010

Major Cost Components for an Ocean Desalination Project

• The RO Treatment Plant• Pre-treatment (if necessary)• Intake System• Brine Disposal System• System Integration for the product water (pump

stations, pipelines and reservoirs)• Power costs

Major Cost Factors for Australian Plants Compared to SOCOD Project

Major Factors Driving Unit Costs Higher• Long and costly new intakes (shafts, tunnels, risers)• Long and costly new brine disposal pressurized lines • Long and costly integration – long lines and high lifts• Renewable energy projects• Alliance Delivery, Rushed Projects

Major Factors Driving Unit Costs Lower• Economies of scale (large plants)• Less stringent product water quality (boron, bromide)

Net Effect = Much Higher Unit Costs than SOCOD

Other Key Factors Affecting Costs

• Plant Size – Bigger is Better• Source Water Quality - TDS, Temperature, Solids, Silt and

Organics Content.• Product Water Quality – TDS, Boron, Bromides, Disinfection

Compatibility.• Concentrate Disposal Method;• Power Supply & Unit Power Costs;• Project Delivery Method & Financing;• Other Factors:

Intake and Discharge System Type; Pretreatment & RO System Design; Plant Capacity Availability Target.

Key Reasons for Cost Disparity Between High-End & Low-end Cost Projects

• Desalination Site Location– Costly Plants Have Overly Long Product Water Delivery Pipelines

• 120 MGD Melbourne Plant – Cost of Plant/Delivery + Power Supply Systems = US$1.7 BB/1.1 BB (50 miles)

• 66 MGD Sydney SWRO Plant – Cost of Plant/Delivery System = US$560 MM/US$490 MM (10 miles of underground tunnel under Botany Bay).

• Environmental Considerations– Complex Intakes & Diffuser Systems

• Phasing Strategy– Intake and Discharge System Capacity;– Pretreatment & RO System Design;

• Labor Market Pressures• Method of Project Delivery & Risk Allocation

Be Careful When Comparing Costs!

• Projects Differ By:– Source Water Salinity and Temperature;– Product Water Quality;– Unit Cost of Construction, Labor and Permitting;– Cost of Capital;– Unit Cost of Power;– Source of Equipment Supply;– Project Completion Schedule.

• Projects Have to Be Normalized for These and Other Factors for Accurate Comparison.

Lewis ConsultingPublic Opinion Survey

October 2011MWDOC Service Area

500 Orange County Registered Voters

Considering only the utilities that you pay for, which would you say is the best value for the amount of

money you pay?

3%

22%

4%

2%6%

27%

9%

8%

7%

0% 11%cable satellite TV

Water

Sewer

Landline Telephone

Cellular/Wireless Telephone

Gas

Electric

Trash Collection

Internet access

Other

Don't know/not sure

During the past year, would you say your household's water usage has been increasing, staying the same or

decreasing?

15%

63%

20%

0%

Increasing

About the same

Decreasing

Don't know/Not sure

What was the primary motivation for you to cut back on water usage?

11%

20%

2%

33%

6%

4%

14%

7%

3% Saving Money

Water agency notices to conserve water

Messages from the media

Right thing to do/just to conserve/good for the environ-mentRising water rates

Cooler/wetter weather

Fewer people in Household/ Child(ren) moving out

Other

Don't know/not sure

Do you believe the cost of water is expensive, fair or reasonable, or inexpensive?

28%

60%

6%6%

Expensive

Fair/reasonable

Inexpensive

Don’t know/Not sure

0%

10%

20%

30%

40%

50%

60%

55%

40%

5%

San Diego’s Opinion about Cost of Water

Too

Exp

ensi

ve

Fair/

Reas

onab

leInexpensive

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Which of the following 7 options do you believe would be most effective in solving water shortages?

39%

53%30%

29%

8%7%

6%

3%

Ocean desalination

Be more efficient with water

Use recycled water

Increase storage

Raise water rates

Import more water

Permanent water restric-tions

Don't know/not sure

When thinking about increasing Orange County's water supply, do you think Ocean Desalination is a

good idea or a bad idea?

63%

18%

18%

Good Idea

Bad Idea

Don't know/ not sure

0% 5% 10% 15% 20% 25% 30%

Desalination

Mandatory Conservation

Voluntary Conservation

Conservation

Recycled Water

Reservoirs/Storage/Wells

Import More Water

Improve Quality

24%

13%

4%

11%

10%

11%

27%

13%

9%

8%

9%

13%

18%

13%

11%

4%

9%

9%

9%

13%

10%

17%

15%

12%

6%

10%

Most Critical Thing that Can be Done to Ensure Safe and Reliable Water Supply for San Diego County

2005

2006

2009

2011

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If the election were held today, would you vote yes or no on the $11.4 Billion, Safe, Clean and Reliable

Drinking Water Supply Act of 2012?

37%

37%

26%Yes

No

Undecided/Don’t know

Would you consider voting yes if the amount of the bond was lower?

28%

63%

9%

Yes

No

Undecided/Don’t know

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Questions?

Thank you!