Poseidon desalination plant OK’d for preliminary contract terms

Concerns over the cost and environmental impacts of desalinated water were overridden by the desire to fortify water supplies when the Orange County Water District board voted 6-2 Wednesday to approve non-binding contract terms with Poseidon, which has spent 20 years on the desalination plant proposal for Huntington Beach.

The plan for the $1 billion plant and water distribution infrastructure would increase the monthly bill for the average residential customer receiving the water by an estimated $3 to $6. It would help ensure the area has water during droughts when supplies from Northern California and the Colorado River are curtailed.

“I’m quite sensitive about the economics of the project but it’s definitely going in the right direction,” said board President Denis Bilodeau, one of several members who cast “Yes” votes.

The board won’t be giving final approval until Poseidon receives its other regulatory approvals.

The company still needs permits from the Regional Water Quality Control Board, which is scheduled to consider the company’s application in December, and the California Coastal Commission, which is expected to take up the issue next year.

But the term sheet approved Wednesday — updating a 2015 agreement — is a key step forward, given concerns expressed over cost, environmental impacts, whether there was a bona fide need for a new water source and whether other alternatives were being pursued aggressively enough.

“This could have really interrupted the momentum of the project if they’d voted against it,” said Mandy Sackett of the Surfrider Foundation. “But there are still significant hurdles.”

Sackett was among 62 public speakers on the issue, with opponents outnumbering supporters 5-1.

Cost unclear

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.

An acre foot is 326,000 gallons – enough for two small families for a year, according to the OCWD. Poseidon’s 56,000 acre-feet a year would replace that same amount of imported water. In total, OCWD distributes 410,000 acre-feet annually to north and central Orange County.

Poseidon officials say the steadily increasing cost of imported water means that desalinated water will eventually cost less than that imported by 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.

Other hurdles

Beside the two environmental regulator permits needed for the plant to break ground, OCWD’s plan is contingent on getting a grant from the Metropolitan Water District of Southern California. The new term sheet also calls for OCWD to reach tentative agreements with local agencies that will buy the water by Nov. 30, and that a proposal for distribution infrastructure be completed by year’s end.

There is also a pending lawsuit challenging the environmental report accepted by the State Lands Commission when the panel gave its approval to the project in October.

Related: Pros and cons of Poseidon, A better supported alternative, Poseidon’s timetable, Some water officials wary

OCWD does not deliver water to end users but rather supplies water to 19 local agencies who in turn provide the water to residential and business customers. It is expected that at least four or five of those agencies would be needed to agree to participate for the new term sheet to be a viable framework.

Key changes in the new term sheet from the 2015 document:

• 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 plus a premium reflecting the company’s financial investment and risk. A similar arrangement at Poseidon’s Carlsbad plant results in the company making a 9.5 percent profit, according to OCWD. The previous term sheet could have resulted in higher profits for the company.
• 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.