Water Authority board OKs $550 million bond sale

By: GIG CONAUGHTON - Staff Writer | Friday, August 27, 2004 11:29 PM PDT ∞

SAN DIEGO ----- County water officials voted unanimously this week to sell up to $550 million in bonds by the end of September to help pay for an ambitious list of projects costing $1.85 billion, including its first treatment plant and a stalled seawater desalination plant.

San Diego County Water Authority's director of finance, Karen Brust, told board members Thursday it was important that the agency complete the bond sale by Sept. 30 to take advantage of historically low interest rates.

Water Authority financial officers said the projects that the bond sale will help fund would not have an immediate impact on ratepayers' bills, but would increase them by about $3.75 a month by 2016.

The Water Authority supplies nearly all the water that San Diego County residents use each year, mostly by buying it from the Los Angeles-based Metropolitan Water District, tacking on a delivery fee, and shipping it to 23 cities and member agencies countywide.

But the agency has become more ambitious during the last decade and has sought to reduce its "over-reliance" upon Metropolitan by seeking its own sources of water. Officials say that diversifying the county's sources of water will make that supply more reliable.

In June, Water Authority board members approved the most ambitious list of capital improvement projects in the agency's 60-year history, with 22 projects proposed.

Officials said the most important projects include a $103 million water treatment plant, which would be the first in the agency's history, and a $240 million plant in Carlsbad that would eventually turn 50 to 80 million gallons of seawater into drinking water a day.

The Water Authority board has identified the proposed seawater desalination plant as its most critical new project because it would give county residents a new, drought-proof supply to supplement the water bought from the Colorado River and Northern California's State Water Project.

However, the agency is at odds with Poseidon Inc., the Connecticut-based private firm that holds a 60-year-lease on the proposed plant site at Carlsbad's Encina Power Plant.

In January, the company and the Water Authority broke off three years of talks, and recent attempts to restart them have again been marred by acrimony.

Meanwhile, Poseidon and city of Carlsbad officials have said they have reached their own deal to build a plant that would provide 50 million gallons per day. However, Carlsbad can only buy 25 million gallons a day, meaning the company needs to find other water buyers to make the deal work.

Choosing stability

The bonds approved by Metropolitan this week do not need voter approval because they will be repaid over 30 years with revenues from water sales, not taxes.

Economists expect the Federal Reserve to slightly increase interest rates by mid-September, a move that could add millions of dollars in interest costs to the Water Authority bonds. Brust said the agency could dodge that additional cost by starting the process before the rate hike and completing the sales by the end of September.

At Thursday's Water Authority board meeting, Keith Lewinger, the agency's board member from the Fallbrook Public Utility District, suggested that the authority could shave millions of dollars off the cost of the bonds by selling variable-rate bonds, which are much lower than the 30-year, fixed-cost bonds that Brust and financial officers have recommended.

"We could save $3 million to $6 million a year on the issuance costs on variable-rate debt," Lewinger said.

But Brust said financial officers are worried that if interest rates increase, variable rates could skyrocket and make them more expensive to ratepayers in the long haul.

She said the uncertainty of the rate market made 30-year, fixed-rate bonds a better buy.

"These (variable) rates can (change) daily, weekly, monthly," Brust said. "So yes, it's very attractive today. But all the economists are saying the rates are going up. We're very concerned that we will look like heroes today ... but next year at the same time, I cannot give you that guarantee."

Contact staff writer Gig Conaughton at (760) 739-6696 or gconaughton@nctimes.com.