Poseidon Wants OC to Overpay For Its Desalinated Water for 50 Years
Drowning in intrigue
Charles Lam/OC Weekly
It's been a long two weeks since our March 13 cover on the proposed Poseidon Desalination Project in Huntington Beach. The day after the story published, UC Irvine professor, NASA scientist and former OC Weekly cover-story subject Jay Famiglietti published an editorial in the Los Angeles Times that was originally titled "California Has About One Year of Water Left. Will You Ration Now?" (The title later changed to "California Has About One Year of Water Stored. Will You Ration Now?" because it turns out we have about one year's worth of water stored in reservoirs, plus more in groundwater. Woo-hoo, accuracy!).
Thousands shared that editorial. Governor Jerry Brown summarily announced a $1 billion proposal supported by both parties that would speed up water bond-money spending (two-thirds of which would actually go to flood-control projects), and the State Water Resources Control Board issued new guidelines that reduced the amount of days homeowners could water their lawns and commanded restaurants to only serve water to customers if they ask.
But buried in that doom and gloom was a draft term sheet released by the Orange County Water District (OCWD) outlining a possible deal with Poseidon to purchase any water the desalination plant would create. The OCWD allowed the term sheet to go before a citizen's committee tasked with reviewing the details, offering its opinions to the board, but ultimately having no real say because the board doesn't need to listen to the committee.
At the March 18 OCWD board meeting opposing Poseidon, dozens of anti-desalination activists spoke (as well as a handful of supporters speaking on behalf of the project), even though the particulars of the term sheet haven't gone viral just yet. And they probably never will, which means Orange County taxpayers might get shackled with overpaying on water for decades.
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Poseidon is banking on the county's false sense of security, as it occupies a curious spot in California's terrible drought. North and Central Orange County are actually doing much better than most of California thanks to a healthy groundwater basin filled by the Santa Ana River that supplies 70 percent of the water those parts of the county use. The remaining 30 percent is imported, mostly from the Colorado River. (South OC isn't so lucky, importing roughly 90 percent of its water; time to rip out those lawns, Mission Viejo and Coto de Caza!)
It's that 30 percent that Poseidon's term sheet is relying on for its mega-profits. The current draft is leagues different from its 2013 proposal to Metropolitan Water District of Orange County (MWDOC), the agency in charge of purchasing imported water for Orange County, or the agreement that Poseidon has in place with the San Diego County Water Authority (SDCWA) for the water produced at its soon-to-open Carlsbad plant.
The most obvious difference is the pricing scheme. While Poseidon and whatever agency it would contract with in the 2013 agreement promised to negotiate a price based on a set of factors (capital and operating costs of the project, financial return, efficient plant operations) adding up to an estimated price of $1,424 per acre-foot, the latest sheet ties the price of desalinated water directly to the price of water imported from the Metropolitan Water District of Southern California (MWD), the agency that purchases imported water for all of Southern California. Under the proposed terms, Poseidon would charge the OCWD the MWD's imported-water rate (currently $923 per acre-foot), plus any avoided MWD fees (about $80 per acre-foot), with an additional "reliability premium." The premium would start at 20 percent for the first 10 years of the deal, then slide down in 5 percent chunks every 10 years, ending at nothing for the deal's last decade. If water were being produced today under that deal, it would cost the OCWD approximately $1,200 per acre-foot--much less than the roughly $2,000 per acre-foot San Diego will be paying.
In addition, Poseidon would also charge OCWD the exact amount of the subsidy the OCWD would receive from a program run by MWD that's designed to develop locally sourced water systems that cost more than imported water. Any extra money MWD would give to OCWD to subsidize desalinated water would go directly to Poseidon (currently, the subsidy is $340 per acre-foot for 35 years).
While this pricing scheme alleviates much of the cost worries initially present in the project (that desal water was far more expensive than imported water), it removes one of the oft-repeated benefits of desalinated water--that it might eventually become cheaper than imported water, with more efficient technologies and increased water demand. In 2014, OCWD forecast that desalinated water might become cheaper than imported water after one or two decades of operation. Under the new rate sheet, though, desalinated water will always be more expensive or the same price as imported water no matter what, even three decades after when it should become cheaper.
That "reliability premium" became one of the major sticking points for the crowd during the March 18 meeting. "I don't see why we're paying Poseidon a 20 percent reliability premium over and above what the MWD is paying for water," said Huntington Beach resident Clem Dominguez, earning applause from the crowd. "They're building the plant; they're running the plant; they have a cost. Once it's up and running, if the MWD has to pay more for water from Colorado, what difference should that make? Why should we pay more to Poseidon? That makes no sense at all. . . . The bottom line is why does Poseidon get 20 percent more for doing nothing?"
Then there's the other major change in the term sheet--the sheer length of the deal. While the term for both the 2013 term sheet and Poseidon's water-purchase agreement with the SDCWA is 30 years, the deal outlined at the meeting lengthens the contract to a full half-century, an additional 20 years of more-expensive-than-necessary water and bad-for-the-environment intakes and outflows if the current design of the plant is approved. (For more information about the possible environmental issues, see the aforementioned cover story, "Zombie Poseidon From Beyond the Grave.")
After roughly an hour and a half's worth of mostly negative public comments from a surprisingly low two dozen people out of the several hundred in attendance (a few people spoke in favor of the plant, including three union leaders and Poseidon Vice President Scott Maloni), the OCWD board allowed the process to move on to its next step, review and commenting by OCWD's Ocean Desalination Citizen's Advisory Committee, a group of 20 mostly current, former and aspiring politicos, plus eight alternates, all picked by the directors. They will meet three times before giving a report to the board of directors, which will ultimately decide everything on its own.
That decision, once the review process is finished at the end of April, could be the end of a more-than-a-decade-long process to get the plant built and may siphon Orange County's water money for decades after. Now that should flood your Facebook feed!
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