Desal Debacle: What if Poseidon Fails Again?

This story was originally published on March 8, 2009 in the OC Voice online. The 2nd of two parts.

By John Earl
OC Voice

Huntington Beach City Councilmember Don Hansen reassured the public. “I’m actually pretty comfortable having a private company potentially evaluate the dedication of a source for our future water supply,” he said.

The Tampa Bay, Florida desalination plant: A series of failures and costly delays. Photo: www.treehuggers.org
A serious of failures and costly delays. The Tampa Bay, Florida ocean desalination plant that Poseidon Resources started but didn’t finish after complications occurred. Photo courtesy of Treehuggers.org

The Tampa Bay, Florida desalination plant: A series of failures and costly delays. Photo: http://www.treehuggers.org That was three years ago at a city council meeting when Hansen and three other council members, Cathy Green, Gil Coerper and Keith Bohr (now Mayor Bohr) voted to allow Poseidon Resources Inc. to build a desalination plant at the corner of Newland and Beach avenues in southeast Huntington Beach.

If all goes according to plan, the facility would convert 127 million gallons of seawater into 50 million gallons of fresh drinking water every day of the year.  The city would have the option of buying up to 3.5 million gallons of that water at a discount compared to the cost of imported water (two-thirds of the city’s water comes from ground wells, its cheapest source of water). The rest would be distributed throughout the Municipal Water District of Orange County (MWDOC), in theory, to provide a guaranteed water source to help offset drought conditions in the state.

The plant still needs approval from the State Lands Commission and the California Coastal Commission and Poseidon still lacks the private and public financing needed to build and operate, although Poseidon officials say that all are forthcoming (see Part 1).

No matter if the Huntington Beach desalination plant fails, Bohr said, because the burden will be strictly Poseidon’s. “We’re not hiring Poseidon, so there’s no risk,” he told hundreds of people packed tightly into the city council chambers. “If it fails, it doesn’t cost us anything.”

But Poseidon’s facility in Tampa Bay, Florida, it’s first (and failed) attempt to build and operate a desalination plant,  is used by opponents to argue against building the Huntington Beach desalination plant.

The Tampa Bay desalination plant, about half the size of the one planned for Huntington Beach, has operated improperly  if at all since it opened in 2003.

The Tampa Bay facility has been able to produce only 14 million of the promised 25 million gallons of fresh drinking water per day so desperately needed in the parched region even after it was repaired and reopened in 2007 as “fully operational,” according to a recent report in the St. Petersburg Times. Full capacity delivery would not be available until May, according to an official memo cited by the Times.

The problem was compounded by repairs in a local reservoir that necessitated draining some of its water supply.

The problems, which started under Poseidon’s watch and continued after the Tampa Bay Water Authority took over complete supervision, have cost local taxpayers about $40 million more than planned on top of rising water rates.

Hansen’s version vs. the record
But the Huntington Beach City Council majority defended Poseidon and blamed government interference for the failure. The Tampa Bay Water Authority (TBWA) “blew it,” Hansen said, by assuming the risk of the project “well before the operation was turnkey.”

TBWA officials saddled the taxpayers with an enormous burden by making adjustments to the plan, Hansen claimed. “And they ended up with something that’s not going to work.” That burden, he stressed, “should be borne by the private developers and in this case [in Huntington Beach] it will be.”

But Hansen’s account of Tampa is at odds with news reports and an analysis by the Pacific Institute, a California non-partisan group that researches and reports on environmental issues.

With the infusion of $99 million in tax dollars (90 percent of the total estimated cost of $110) for construction of the plant and accompanying water pipeline, the Tampa desalination plant was supposed to be a privately owned and operated facility. It didn’t end up that way, however, due to financial difficulties and construction failures by Poseidon’s business partners.

Three bankruptcies by Poseidon’s partners had to occur before the Tampa Bay Water Authority (TBWA) actually took control of the project, two years after its planned start date. TBWA bought out Poseidon and its partners between the first and second bankruptcies due to the poor bond rating of Poseidon’s partners and their inability to acquire financing for the project. But Poseidon’s partner, Covanta, was left in complete charge of building and operating the plant.

Operational failures-including clogged filters-stemmed from cost cutting measures taken during construction. Poseidon and partners were in complete control of construction during that time. Simply put, the plant could not finance itself even with tax dollars, nor could it function properly after multiple attempts by private companies–not even in a much better economic climate than exists today.

The plant had to be shut down by TBWA pending repairs.

That’s when TBWA took over complete control and for $29 million more hired American Water/Pridesa, to get the plant running.

In late 2007, more than 7 years after construction began, the plant finally became operational. but the price of construction rose to $158 million and the cost of water from the plant for consumers went from an estimated $677 to $1,100 per acre foot, still cheaper than desalinated water in other locations due to a much lower salt content in the seawater and other factors unique to the local environment.

Could it happen here?
Could the Tampa Bay debacle be repeated in Orange County?

A recurrence is preventable, according to MWDOC’s Assistant General Manager, Karl Seckel.

Seckel says that Poseidon could be required to put enough private equity into the Huntington Beach project so that it would have an incentive not to walk away or so that if it did walk away it would leave behind a substantial amount of cash for the new owners, which would be the taxpayers under the direction of MWDOC.

“We would then step in their shoes and we would become owner of the facility, but they would leave some of their equity behind that we would take advantage of,” Seckel told the Voice.

Requiring Poseidon to pledge money in the event of default rather than straight equity is another possible route, Seckel says. “You can have a sort of insurance policy where they will come in and you can bring some money into the mix that way…That’s not an insurmountable issue. It can be dealt with.”

Lessons have been learned.

“Tampa in general was not the smoothest transaction and I think a lot of people have learned a lot from that,” Seckel said. “And so one of the things we try not to do is repeat mistakes that we’ve made or others have made.”

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