23 Oct 2012

Will San Diego make the desalination mistake?

Poseidon Resources has been lobbying to build a desalination plant in Carlsbad (San Diego County), California for around a decade, and I've been skeptical of that proposal (earlier posts) -- mostly because water consumption in San Diego is still quite high (ranging from 100-300 gallons/capita/day; compare that number to Sydney or Melbourne at 50 gcd!).

It makes more economical and environmental sense, in other words, for San Diego to reduce its demand before going for more supply (this year-old analysis of their supply alternatives [pdf] lists desalination at $1,600/af but that cost is now up to $2,000+/af).

But San Diego politicians are not thinking in terms of environmental or economic sustainability. They are at war with the Metropolitan Water District over imported water and in alliance with property developers who want more supply to build more subdivisions. (It's ironic, in fact, that SD leaders worry about the burden of paying too much for more water imported from Met via the Delta [pdf] when they are prepared to throw caution to the wind for a local "solution.")

Those are just some preliminary comments and opinions based on my observations over the past 7-8 years, but there are some new developments that make these comments even more relevant.

First, the San Diego Country Water Authority is thinking of signing a 30-year water purchase agreement to buy water from Poseidon, an agreement that will make it possible for Poseidon to borrow money from the State of California (!) for constructing the plant.

Second, that agreement does not specify how much equity ("skin in the game") Poseidon will bring to the table in financing the $900 million project, but it DOES specify how much money Poseidon will receive for "overseeing" a project that it will neither design, nor construct, nor operate.

Third, it appears that SDCWA will pay about $3.2 billion over 30 years for water that will be twice as expensive as its existing water supplies from Met. Given the industry-norm of charging average cost for water, that means that SDCWA will be selling water it buys for $2,000 per af for about $1,200 per af. Try swinging that business model past Wall Street. (The Independent Rate Oversight Committee sure doesn't like it! [pdf])

Fourth, you should read my 6-page analysis of the water purchase agreement (all 550 pages of what-the-hell-are-these-lawyers-saying!?!). The Surfrider Foundation paid me to prepare it, but -- as usual -- I acted as a consultant with a conscience: I put my original opinions in that report, since I am paid for honesty and accuracy, not groupthink. But read it for yourself.

Bottom Line: San Diego should not build a desalination plant because it would be an expensive non-solution to water reliability problems that are actually caused by poor management of regional water at Metropolitan and a failure to restrict demand to sustainable levels.


John Fleck said...

Had I been a betting man, I would have bet long ago that Poseidon would never be built - that ultimately the actual cost would make the project self-canceling. Luckily I'm not a betting man, because that's a sucker bet (a payoff on "never"?) but also because the 30-year agreement looks like it could be about to prove me wrong.

David Zetland said...

@Fleck -- just b/c it's signed doesn't mean you're not right about "self-cancelling"!

paul savage said...

My question is, are the decision makers aware of things such as this:
50 million gallons daily=153 AF per day times 360 =55,080 AF/yr
Price per AF $2,042 to $2,290 = average $2,167 per AF
Cost for treated water=$331,500 per day= $9,947,000 monthly
=$119,364,000 annually

This is after a $900 million investment. So, thru the year 2035 say 22 years SD will spend an additional $2,626,000 for water. So the total investment will be $3,526,000,000

But ‘sposin’ SD decided to acquire 800,000 AF of storage thru the Semitropic-Rosamond Water Bank Authority storage facility (JPA). This would meet current 153 AF annual demand for over 14 years.

Capitalization cost say $350 million.
22 Years of management & maintenance @ $6.25/Af = $5 million annually for 22 years = $110 million
SD buys water for an average of $500 per acre foot and we buy 800,000 AF that equals $400 million
Cost to put water in & take water out is $100 per AF each way
$200 times 800,000 = $160 million
Total cost for 22 years =

So, Let’s compare costs:
The total for the Desal operation for 22 years = $3,526,000,000

Total for storage project = $1,020,000,000

$3,526,000,000 minus $1,500,000,000 = $2,026,000,000

…and SD continues owning the storage past 2035….

One more thing, SD already owns 14,000 shares in the JPA
= 56,000 AF of storage

Respectfully submitted,

Paul Savage 530-863-7452 paulsavage1@yahoo.com

Ratepayer said...

While SDCWA's quest for "supply reliability through supply diversification" is a laudable pursuit, too many questions come to surface. Why now? What politics are involved? Why not push more conservation? What does the ratepayer's burden look like now when compared to the 1990's? and most importantly:

Will the end justify the means?

It's tough being a pawn in this game...

Anonymous said...

Poseidon is a real pain in this industry. I’ve watched them for years get small municipalities under their cloud and then drain them dry of money.

I tried last year to talk to some folks there, but was told NO – we have made a deal with Poseidon and that is that. But then their deal kept changing.

Anonymous said...

While I certainly agree that desalinization is very unlikely to be the best solution, I would strongly suggest that San Diego also check their unaccounted for water loss (leakage and/or theft). In addition to looking at demand management, we usually found that desalinization was far more expensive than leak reduction. Unfortunately, desalinization provides more photo ops and is just plain sexier than leak reduction.

Post a Comment

Note: only a member of this blog may post a comment.