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Some water officials are wary of Poseidon desalination plant costs ahead of key vote

Water officials throughout drought-prone Southern California are eager to bolster supplies and diversify sources, but some of them say desalination in Huntington Beach isn’t the way to do it.
Concerns of those skeptics — particularly cost — are expected to be front and center Wednesday, July 18, when new contract terms are considered for the Poseidon desalination company’s proposal. Officials may want greater water security, but not necessarily at any price.
“Everyone is very sensitive about the economic aspects,” said Denis Bilodeau, chairman of the Orange County Water District.
Poseidon, which has spent two decades and more than $50 million pursuing the project, hopes to have its final two environmental permits in hand next year. But first comes the updating of prospective, non-binding contract terms with OCWD, which would buy the desalted ocean water and distribute it to local water agencies.
Wednesday’s consideration of the new terms by OCWD comes six weeks after directors there postponed a vote because of questions raised by those uncomfortable with the proposed terms.
While environmentalists have led the way in criticizing the project, the mixed messages from water officials could portend non-environmental challenges for the project — including approval of the updated term sheet.
While the term sheet is non-binding, rejection by the OCWD board would likely send the two sides back to the negotiating table.
Critics launch salvos
OCWD provides water to 19 member agencies and does not deliver any water directly to the end customers. The new term sheet to be considered Wednesday calls on tentative agreements to be reached with agencies that will buy the water by from OCWD by Nov. 30 and that a proposal for distribution infrastructure be completed by year’s end.
The agency estimates the average residential customer receiving Poseidon water would see a monthly rate increase of $3 to $6.
Most of the county’s more than two dozen local water providers have remained officially neutral while details of the project unfold. Only two water districts — Santa Margarita and Mesa — declared their unqualified backing when the new term sheet was considered by the OCWD board in June.
Meanwhile, two water agencies — Irvine Ranch Water District and the privately owned Golden State Water Co. — made it clear they wanted no part of the project.
“We respectfully suggest that the Huntington Beach desalination project is not a project that OCWD should be investing our customers funds in,” Golden State Senior Vice President Denise Kruger wrote OCWD in advance of last month’s meeting.
Golden State and Irvine Ranch say the water would cost too much and are worried they could end up paying more even they don’t sign up for Poseidon’s desalted product.
A related concern is that details of the distribution infrastructure for delivering the desalted water have yet to be developed.
The broad estimate range of distribution infrastructure price tag — $100 million to $300 million in addition to $622 million now estimated for the desalter plant itself — contributes to uncertainty about eventual costs.
John Kennedy, OCWD executive director of engineering and water resources, asked for the public and for fellow water officials to be patient for remaining details.
“Once OCWD develops and proposes a distribution plan, ample time will be provided for review and comment,” he said.
Only a handful of agencies need to sign on to take Poseidon water. The district needs to find takers for about 45,000 acre-feet of water annually, a fraction of the 410,000 acre-feet OCWD now supplies local agencies.
Cost of desalting
The main sources of Orange County’s water are imports from northern California and the Colorado River, local flow from the Santa Ana River and the Orange County groundwater aquifer, which OCWD bolsters with a trailblazing wastewater recycling program.
The Poseidon plant is intended to reduce the need for imported water, which would help insulate users of the desalted water from cutbacks during droughts as well as leaving more imported water available to others. While droughts are relatively infrequent, University of California researchers say that climate change will make both wet and dry periods more extreme in coming years.
Backers of the Poseidon project say all reasonable avenues for water should be pursued — and that desalinated water should be part of the equation.
“For us, it’s an ‘all-of-the-above approach’ to ensuring reliability, particularly in south Orange County, where we have little or no groundwater,” said Jim Leach of the Santa Margarita Water District.
But others balk at the cost.
At $1,700 to $1,800 an acre-foot, the Poseidon water would initially cost about $500 more an acre-foot than that imported to the county by Metropolitan Water District, which provides about 26 percent of OCWD’s water.  About 40 percent of OCWD current supply comes from local groundwater aquifers and costs $525 an acre-foot. OCWD currently distributes its water to north and central parts of the county.
Poseidon officials say the steadily increasing cost of imported water means that desalinated water will eventually cost less than that from the Metropolitan Water District — but there’s debate over the future cost of that imported water. The Metropolitan Water District predicts a 4.1-percent annual increase for the next decade while Poseidon points to the historical annual increase of 6.25 percent.
An OCWD analysis for a 35-year contract with Poseidon shows that at a 6.25 percent annual increase for imported water, the desalinated water would cost less after 13 years. But if imported water increases 4.1 percent annually, it would take 30 years for the desalinated water to cost less.
Irvine vs. Poseidon
The agency most consistently and adamantly opposed to the Poseidon plant is the Irvine Ranch Water District.
The district is among those concerned that the plant will increase the cost of OCWD water to local agencies even for those who do not sign deals to receive Poseidon water. OCWD is considering storing desalinated water in the groundwater aquifer, which 19 local water agencies tap into and would continue to use even if they aren’t contracted to get desalted water.
Related: Pros and cons of Poseidon, A better supported alternative, Poseidon’s timetable
Because adding Poseidon water to the aquifer could increase the cost of groundwater, Irvine Ranch is concerned that they would end up subsidizing the Poseidon water even though they have no desire to use it.
OCWD’s Kennedy said that storing Poseidon water in the aquifer is an option but noted that the storage and distribution system has not yet been determined.
Irvine Ranch argues that there are more affordable alternatives to desalinated water and points to its own Strand Ranch water bank in Kern County, a joint project with other water districts that’s been in operation since 2011. It replaces water lost when the Metropolitan Water District cuts flows because of drought. It costs slightly more than Metropolitan water but significantly less than Poseidon water, according to Irvine Ranch General Manager Paul Cook.
Poseidon Vice President Scott Maloni said that Irvine Ranch’s opposition to the desalter plant is because it sees the project as competition. Cook refuted that, but said if Irvine Ranch sells water to other districts during future droughts, it would be for the actual cost of the water plus a proportional share of operating expenses.
Contract terms
Several officials have said that the revised term sheet to be considered Wednesday — a nonbinding framework — is a better deal for OCWD than the previous version, approved in 2015. Key changes:

The proposed length of the contract is now 30 to 35 years rather than 50 years, shortening OCWD’s committment.
The price Poseidon can charge for the water will be tied to the company’s actual cost to produce it plus a premium reflecting the company’s financial investment and risk. The previous term sheet would have allowed Poseidon’s profit to be based on the cost of Metropolitan’s imported water.
OCWD assumes risk for electricity rate hikes rather than Poseidon, which is expected to result in Poseidon charging less for the water.
OCWD now has the option to have Poseidon finance and build the new infrastructure needed to distribute the water. The old contract left that responsibility with the water district.

Of the 10 OCWD board members, three expressed reservations with the new term sheet last month, three offered support and the remaining four did not publicly signal a position.
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Source: OC Register

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