Water Company Main Extension Contracts are contracts where the developer pays the cost to extend water mains to serve the developer's project, and the water company refunds the main extension cost over 40 years.
In California, when a new real estate development project needs additional water services, the developer must pay the water company for the cost of water mains, and special facilities such as pumps, wells, and holding tanks needed by the developer's project.
In certain water service jurisdictions, the water company must refund the cost to the applicant (developer) over 40 years, making annual payments of a fixed amount until the total refundable amount is repaid.
Real estate developers holding main extension contracts usually sell their contracts to Neptune Investment for an up-front cash payment, rather than hold the contract for 40 years.
Main extension contracts are governed by Rule 15 of the California Public Utilities Commission. Rule 15 requires that after the water facilities are installed, the Water Company must refund to the Applicant 2.5% annually of the construction cost. At 2.5% of original cost each year, it takes 40 years to return 100% of the refund.
Neptune Investment Company buys Refund Contracts from real estate developers and either holds the contracts in house or resells to investors seeking fixed payments over a long repayment term.