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Public subsidies approved for San Diego County desalination project

The vote by the Metropolitan Water District board means the private venture could get up to $350 million. Coastal groups opposed the action.

November 11, 2009|Bettina Boxall

Southern California's first major seawater desalination plant moved forward Tuesday when it won public subsidies that could eventually amount to $350 million.

Years in the planning, the private San Diego County venture would be capable of producing enough water to supply about 100,000 homes.

The Carlsbad project is the furthest along of a host of desalination plants under consideration on the California coast. Backers said Tuesday's vote by the board of the Metropolitan Water District of Southern California was critical to getting private financing, the plant's next hurdle.

The project has obtained major state environmental approvals but continues to be challenged by coastal groups.

"We're going to fight it every step of the way," vowed Eddie Scher, one of several dozen opponents who asked the MWD not to approve the subsidy.

They argued that Southern California can gain the same amount of water through conservation -- which is cheaper, less energy intensive and friendlier to the environment.

Adding to the debate is the project's private ownership. It would be owned and operated by Poseidon Resources, a small Connecticut company that has struck agreements to sell the purified seawater to nine water agencies in San Diego County, including Carlsbad, Santa Fe and Oceanside.

"Fund public projects," urged Miriam Torres of Environmental Justice Coalition for Water when she spoke against the project at a board committee meeting Monday.

The San Diego County water districts would collect the subsidy from an MWD program that underwrites development of new local supplies, including recycling and groundwater programs.

The annual payments, which MWD staff said could amount to about $350 million over the 25-year life of the agreement, would help offset the cost of the desalinated water, which is more expensive to produce than conventional supplies.

San Diego County is at the end of the pipeline for state water deliveries from Northern California and has for years wanted to lessen its dependence on imported supplies.

Most of the board discussion Tuesday and at the Monday committee hearing centered not on the merits of the desalination proposal but on a condition the committee wanted to set on the subsidy.

The condition made the money dependent on the continuation of a fee program that the MWD uses to fund the subsidies -- a fee that some San Diego County agencies would like to end because it drives up the cost of water.

Poseidon representatives protested that the condition would kill their project because an important revenue stream would no longer be guaranteed, scaring away investors.

"The project will not be financeable," warned Steve Howard of Barclays Capital, which is advising Poseidon.

The subsidies, he added, would represent 15% to 20% of the project's revenue in its early years.

In the end, the board amended the condition in a manner that satisfied Poseidon.

The company is also seeking tax-exempt status for the more than $500 million in bonds it hopes to sell by the end of the year. That would lower its interest costs.

The desalting plant, scheduled to begin operating in 2012, would be built near the Encina power station. The plant would take water from the station's cooling stream and pump it under high pressure through a series of filters and synthetic membranes to strip out salts and contaminants.

The process consumes a lot of energy, a major reason why desalted seawater is currently one of the most expensive water supplies.

There are also environmental issues with the large volume of salty brine that is a byproduct of the purification process. The brine has to be diluted before it is returned to the ocean.

Under the plant's environmental permits, Poseidon has agreed to restore 66 acres of coastal wetlands.

The company will also buy carbon credits to offset its emissions and spend $1 million on tree planting in San Diego County, said Poseidon Vice President Scott Maloni.

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bettina.boxall@latimes.com

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