Corpus Christi to pursue initial contract for desalination project

Corpus Christi, Texas, took another step toward revisiting an inner harbor desalination project to help address water supply woes that have sparked credit concerns by launching contract negotiations with a different design-build team.

The city council voted 5-3 on Tuesday to direct staff to develop a design-build contract with Corpus Christi Desal Partners (CCDP), a joint venture with Acciona Agua Corp. and MasTec Industrial Corp. The contract ? which will include design work for up to 60% of the seawater treatment plant and a guaranteed maximum price for the project ? is targeted for consideration at an April council meeting.

In September, the council effectively terminated the project as the estimated price tag escalated to about $1.3 billion under design-build contractor Kiewit Corp. The project, which would be the first seawater desalination plant for municipal use in Texas, was revived in November when the city council selected CCDP to produce design and construction proposals at no cost to the city.

CCDP has provided the city with a preliminary guaranteed maximum price of $978.77 million.

Corpus Christi Water, the primary water supplier for a seven-county region, is experiencing stage three drought conditions that triggered water-use restrictions. A level 1 water emergency, indicating the system is 180 days from supply not meeting demand, is projected for November. A water supply dashboard on the city's website shows two western reservoirs being depleted during the first half of 2027.

The city was hit in December with downgrades and negative outlooks by Moody's Ratings, which pointed to accelerated water depletion risk and a narrow timeframe to implement solutions before supply fails to meet demand.

In October, Fitch Ratings and S&P Global Ratings revised their outlooks on Corpus Christi's utility system revenue bonds to negative from stable, signaling concerns over the city's ability to boost its water supply.

Credit concerns have spread to the San Patricio Municipal Water District, which counts on Corpus Christi as its primary water supplier. Fitch on Friday revised its outlook on the district's A-plus water revenue bond rating to negative from stable.

The revision "reflects Fitch's view that operational pressures exist due to the heightened uncertainty around water supply provided by the district's wholesale supplier Corpus Christi," the rating agency said in a report.

Brian Williams, the district's general manager, said opportunities are being actively pursued to address the potential water shortfall from its supplier.

Corpus Christi has been lining up projects to boost water supplies in the nearer term, with the council passing a resolution earlier this month signaling its intention to issue up to $410 million of water revenue bonds in the future to reimburse cash-on-hand expenditures for projects to treat brackish water and tap groundwater.

City Council Member Gil Hernandez, who voted against the CCDP contract resolution, raised concerns about the city's burgeoning debt load.

"We're going to increase the amount of debt we have by $3.2 billion to pretty much double the entire city's debt in just water projects that we have going now," he said.

The city remains on the hook to pay off $232 million of bonds the triple-A-rated Texas Water Development Board sold for the original desalination project through its State Water Implementation Fund for Texas program.