Tag Archive | "subsidy"

Dead in the Water? Requested Subsidy for Surf City Desal Project Stirs Debate


By John Earl
Surf City Voice

What is the future of seawater desalination in California?

As of 2006, 22 desalination plants had been proposed for construction along the California coast between San Rafael in the north to Carlsbad in the south. Today, only nine projects are still in the running, and even those are on shaky ground, according to an analysis by the Desal Response Group, a statewide organization generally opposed to ocean desalination.

Critics of ocean desalination (desal) say that the water industry’s dream — shared with evangelical zeal by a growing cabal of public water officials — of sprinkling the coast with desalination plants is dead in the water.

As proof, they point to spiraling costs, lack of financing, stalled technology, and higher than average water supplies after the end of the California “drought.” They say that there are underutilized and much more cost-efficient alternatives such as conservation, increased water collection and waste water recycling – minus seawater desal’s high environmental costs.

That’s why desal critics are upset after a June 6 vote by the Municipal Water District of Orange County (MWDOC) to send a letter to its umbrella agency, the Metropolitan Water District of Los Angeles County (MET), to request $350 million in funding support for the Huntington Beach Desalination Project that Poseidon Resources Inc. wants to build on Pacific Coast Highway and Newland Avenue.

At an estimated construction cost of $700 (according to a recent Costal Commission analysis), the plant would produce 50 million gallons a day or 56,000 acre feet per year of drinking water, 8 percent of Orange County’s supply. The plant would share the seawater intake pipes currently used for cooling by the AES power generating plant.

Poseidon wants to build a nearly identical desal plant in Carlsbad in San Diego County.

The proposed taxpayer-funded subsidy, says the letter, which was written June 23 and obtained by the Voice, would help MWDOC’s agencies to “defray” the high cost of desalinated water—which is generally two to four times higher than other sources.

The subsidy would go through MWDOC’s agencies which would in turn pay it directly to Poseidon over 25 years at $14 million per year in return for water delivered.

Largely funded by taxpayers outside of Orange County who won’t use the water, the subsidy would artificially lower the cost of Poseidon’s desalinated water, which would still probably not be competitive with the cost of water from other sources, including imported water. Desal advocates say that technological improvements for desalination and rising costs of imported water will cause prices to crisscross in the near future, but those improvements show no signs of arriving soon, if ever.

A pro-industry report published in 2004 by the federal government concluded that the invention of cost effective desal technology would require a huge influx of government subsidies to fund the research and development that the industry is lax in doing itself. Even then, it would take over 20 years to make seawater desal competitive, the report estimated.

Without huge public subsidies, Poseidon cannot attract the private investors and get permission to pass tax free bonds also needed to finance the construction of its Huntington Beach plant. To the point, without subsidies—and based on past experience $350 million would not be nearly enough—Poseidon’s HB plant will be out of business.

That is exactly the scenario that played out last year for Poseidon’s proposed desalination plant at Carlsbad in San Diego County. It would be nearly identical in size and type and has received all of the necessary permits but stalled due to lack of financing and increased cost projections for the price of its water.

As reported last June by the Voice, a memo from the city manager Peter A. Weiss of Oceanside, one of nine water San Diego County agencies that had signed water purchasing agreements with Poseidon at that time, pointed out that Poseidon would need $630 million in government financial assistance.

Scott Maloni of Poseidon Resources Inc.

Poseidon's VP Scott Maloni says the debate is over. Photo: Arturo Tolenttino

“In the past few months it has become apparent that Poseidon’s cost of water is going to be greater than originally proposed,” Weiss wrote. “To make the project viable, Poseidon needs subsidies from the San Diego County Water Authority (CWA) and Metropolitan Water District.”

But $630 million was too much money and a lawsuit filed by the city of Carlsbad against the MET had effectively canceled the larger of the two subsidies anyway. So the CWA decided that the only way to keep the project alive was by spreading the costs to all 26 of its member water agencies rather than the original nine with options to buy the desal plant from Poseidon later on.

That’s exactly the same arrangement that MWDOC will seek for the Huntington Beach plant, according to MWDOC’s General Manager, Kevin Hunt.

With MET’s subsidy to the CWA now off the books, Hunt decided that now is a good time for MWDOC to put a claim on the $350 million on behalf of its 28 agencies. So far, not a single one of them has signed on to buy Poseidon’s water, but Hunt believes that, since the MET will be looking at budget priorities next year, now is a good time to make the request.

The subsidy has always been the 1,000 pound gorilla in the room, although previous Huntington Beach city councils and the mainstream media chose to ignore it. But after years of project delays that were mostly self inflicted, and as the time comes for Poseidon to fish or cut bait, the company’s appetite for public assistance can no longer be hidden and has become a sore spot for the god of the sea.

But before voting to approve and mail the letter that it had not read, the board gave instructions to spin the subsidy from the publicly financed project that it is into the 100 percent privately funded project that Poseidon and supporters have always bragged it is.

Director Brett Barbre, representing parts of northern Orange County, started the impromptu skit, asking Hunt:

Does the $250 [per acre foot] go to Poseidon?

Hunt: No.

Barbre: Or does it go to the water district?

Hunt: The $250 goes to the water authority and its member agencies.

Barbre: Those that are actually purchasing the water?

Hunt: Whenever there is a subsidy, it goes to the public agency, not to the –

Barbre: It’s a big distinction.

Member Susan Hinman from south Orange County wanted and received assurance that Barbre’s spin would be applied to the letter before it was sent. “I feel uncomfortable about this,” she said. “I don’t see a copy of the letter and is there any reason why this can’t be delayed until the next committee meeting with a copy of the letter with the wording that you’re expressing,” she asked Hunt.

But Hunt’s other reason for rushing the letter through is to help Poseidon, which is years behind in answering basic questions put to it by the Coastal Commission, to “get the ball rolling.” Three to six months more for needed staff meetings with the MET would occur before the issue is placed on the agenda for vote, Hunt said.

Jack Foley, MWDOC’s appointed representative to the MET, concurred with the need to create confidence in Poseidon’s project by showing the Coastal Commission and investors that the company’s Surf City desal plant “has a real future” with actual water to sell.

When challenged on the real reason for the subsidy—to attract construction money—Foley stuck to the official story, that it will merely assure investors that there is a buyer for the project over the long term, denying the board’s own admission (in its soon to be sent letter) that the money was needed to defray the [highly uncompetitive] cost of Poseidon’s water.

The subsidy’s true purpose has been an open secret for a decade, but a report last year by the DC Bureau – based on interviews with government and Poseidon officials – spelled out in detail how the previously approved but now revoked subsidy for Poseidon’s identical Carlsbad desal project would have directly benefited the company by reimbursing it, at the company’s request, for construction costs plus interest.

Of course, Poseidon vice president Scott Maloni, who was at the meeting, still boasts that the HB desal plant is a privately funded project and is badly needed by the people of Orange County as part of a larger water portfolio – assertions that Orange County water officials accept as articles of faith.

“I feel like these folks are reopening old debates that have been solved years ago and it’s nothing to do with what’s on the table today,” Maloni told the board, responding to audience members, including this reporter, who challenged his assumptions. “They know that the project is needed…There’s no debate about whether the project is needed. And there’s no debate about how the MET subsidy works.”

In the second and final part of Dead in the Water on Wednesday: Is Poseidon’s proposed Huntington Beach desalination plant needed?

 

Posted in Environment, Headlines, MWD, MWDOC, Poseidon, Water BoardingComments (0)

Poseidon Desal Deal? Govt. May Rescue Junk Bond Project


By John Earl
Surf City Voice

Due to soaring cost estimates and lack of private financing for a proposed 50-million-gallon per day Carlsbad desalination project, a government water agency may negotiate a takeover deal with the project’s developer, Poseidon Resources, Inc.

Poseidon Resources is a budding multi-national water baron that also has an identical desalination plant in the dock for Huntington Beach, next to and functionally linked with the AES power plant, on Pacific Coast Highway and Newland Avenue.

What happens in Carlsbad will indicate what could be in store for the Huntington Beach project and residents of our city as well.

The $650 million Carlsbad project would have supplied 56,000 acre feet of drinking water per year to nine of 24 San Diego County water districts under the umbrella of the San Diego County Water Authority (CWA).

But the cost of water derived from the desalination plant will be much higher than previously stated and it would take $630 million in combined public subsidy funds paid in yearly installments over 25-30 years to make the “private” project financially viable, according to a memo written by Oceanside city manager, Peter A. Weiss.

Oceanside is one of the nine water districts, known collectively as The Desal Partners, which had signed water purchasing agreements with Poseidon.

Due to Poseidon’s financing troubles and needed word changes, however, those agreements had to be revised before the project could proceed. But only one member, the city of Carlsbad, has signed a revised contract so far.

“In the past few months it has become apparent that Poseidon’s cost of water is going to be greater than originally proposed,” the memo states. “To make the project viable, Poseidon needs subsidies from the San Diego County Water Authority and Metropolitan Water District (MWD)”, the memo continues.

The CWD is a member of the MWD, which supplies water to 26 southern California water agencies. Read the full story

Posted in PoseidonComments (5)

Bill Borden Responds on Poseidon ‘Myths’


Dear John,

Thank you for your question in regard to a recent column.

You are asking me to prove that there  are no public funds being used for the Poseidon project. You are a pretty smart guy and must know that it is philosophically impossible to prove a negative. If you are making the claim that public funds are being used, then it is you who should do the proving.

I will advise that no municipal bonds are being used and that the project is not being subsidised. If you are able to prove that public funds are being used, your other readers and I would be very interested in the details.

One area frequently misconstrued as public funding is the subsity given as an incentive to MWD, not Poseidon.

Further, Poseidon in Carlsbad issued tax free bonds, but as you know these are not public funds.

You indicate that you will have other questions regarding this column. While I always respond to reader questions, I have no thirst for an ongoing dialogue on this column or any other column. I write 52 a year and can’t keep dwelling on one over another.

Thank you again for reading my column and taking the time to write.

Sincerely.

Bill Borden

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Posted in Environment, PoseidonComments (4)

Desal Bailout?


By John Earl
Surf City Voice

Originally published March 17, 2009 as part 1 of a three part series on desalination.

Poseidon Resources Inc. and the four Huntington Beach city council members who voted in 2006 to approve the company’s request to build a desalination plant in the city’s southeast section promised that the project would be paid for with private funds-at no cost to the city’s taxpayers.

Poseidon's puppets?

Poseidon's City Council Allies: Don Hansen, Keith Bohr, Gill Coerper, Cathy Green

But Poseidon, a multi-national equity investor and developer of privatized water systems, currently controlled by “zombie” bank, Citigroup (which is being bailed out by federal tax funds), could directly and indirectly benefit from $1 billion in public funds, about 70 percent of that courtesy of taxpayers in Los Angeles, Orange and San Diego counties and the rest paid for by taxpayers across America through the American Recovery and Reinvestment Act (ARRA) signed into law recently by President Barack Obama.

The subsidies would also be directed at a nearly identical Poseidon desalination plant in the city of Carlsbad and would help ensure but not guarantee that both plants are cost effective for Poseidon to build and to operate. Under the city approved plan, Poseidon would build the desalination plant in Huntington Beach next to the AES power generating station at Beach and Newland streets. Poseidon’s plant would suck in 127 million gallons of seawater per day through existing AES cooling pipes to create 50 million gallons of per day or 56,000 acre feet of drinking water each year.

Poseidon would sell 3.2 million gallons of converted seawater per day to the city, a small fraction of its total daily water usage from other source, at five percent less than it pays the Municipal Water District of Orange County (MWDOC) for water. The other 47.8 million gallons per day would go to MWDOC’s member districts at government subsidized prices. Jobs would be created by the building and operation of the plant and the city’s tax base would go up, according to predictions made by Poseidon and city staff.

Councilmember Don Hansen summed up the council majority’s view three years ago when he reassured hundreds of city residents packed into the council chambers that the desalination plant was “born purely on private investment dollars” to be spent at Poseidon’s risk, not the taxpayers’. Read the full story

Posted in Environment, PoseidonComments (2)


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