Monday, February 2, 2004
Last modified Wednesday, January 28, 2004 11:07 PM PST

San Diego Water Authority / Poseidon desal Water deal dispute a mystery

By: GIG CONAUGHTON - Staff Writer

San Diego County Water Authority board members are expected to approve a staff recommendation today to break off three years of negotiations to build a $270 million plant at Carlsbad's Encina Power Plant that would turn seawater into drinking water.

Water Authority leaders are recommending backing away from the project because of a seven-month-long dispute with Poseidon, Inc., the private company that started studying the idea six years ago.

The Water Authority has identified the Carlsbad plant and seawater desalination as critical to the county's future water supply, partly because Southern California's share of its main water source, the Colorado River, is shrinking.

If the Water Authority stops negotiating with Poseidon, the company would be left to continue talks to build a plant at Encina, where it has a 60-year lease on the property, with the cities of Carlsbad and Oceanside and others.

However, some water officials wonder if the cities could make the plant idea work, because they use far less water than the regional Water Authority ---- which supplies nearly all the water county residents use through 23 cities and agencies ---- and have far fewer ratepayers to absorb the plant's cost.

If built, the plant would be the largest ---- and only the second large-scale ---- plant in the Western hemisphere designed to turn the ocean into drinking water.

Both the Water Authority and Poseidon are characterizing the looming break in negotiations as a "cooling off period," and say that the two sides could resume talks at a later date on the plant.

However, neither side has even been able to agree on the nature of their dispute.


At the heart of the dispute between the Water Authority and Poseidon is a confidentiality agreement, a routine pact that negotiating parties use to protect "trade secret" information.

Water Authority officials say Poseidon isn't using the pact to protect secret information ---- but to argue that the very idea of building a desalting plant at Encina is Poseidon's confidential information.

Ken Weinberg, the agency's director of water resources, said Poseidon is using the confidentiality agreement as a "no-competition" pact that would bar the agency from ever building a plant at Encina ---- unless Poseidon was part of the deal.

"We believe that they're using the agreement ... to say that the only ones that can do a project at the power plant is Poseidon," he said.

Poseidon officials say that's not true.

They say the Water Authority wants permission to break the confidentiality pact, take Poseidon's information ---- data it took Poseidon six years and millions of dollars to create ---- and to give it to some other company to build the plant.

No competition

Water Authority officials indicated they would like others to compete on the project.

They say Poseidon is unfairly blocking all competition from outside companies, and asking public agencies ---- the Water Authority, Carlsbad and Oceanside ---- to compete against one another.

"And they'll (Poseidon) take whichever deal is best for Poseidon," Water Authority assistant general manager Dennis Cushman said. "And whichever deal is best for Poseidon is the higher price to someone's ratepayers. We think that's a bad dynamic."

Poseidon officials countered by saying they fairly reached a long-term lease with Cabrillo Power to secure the Encina site, and have worked hard to develop a project plan and court customers like the Water Authority and Carlsbad.

But Weinberg, Cushman and others essentially said this week that Poseidon's studies aren't secret because the details of extracting salt from seawater by forcing it through membranes is common knowledge.

The dispute surrounding the confidentiality agreement began in the summer of 2003 when Water Authority requested copies of specific studies that Poseidon had conducted at Encina that the agency said it needed to prepare an environmental study. Water Authority officials said the larger question of the "meaning" of the confidentiality pact arose during discussions over how the specific documents would be used.

Agreement vague

It's not easy to tell who's right or wrong by reading the three-page confidentiality agreement.

It does contain a clause saying that all confidential information can be used "only for evaluation, negotiation and performance of contracts with the disclosing party" ---- Poseidon. But it also contains a clause saying that information could be considered confidential if the receiving party already had it, or could develop it on their own.

That has raised the question of whether the Water Authority could simply enter the Encina Power Plant site and do its own studies to finish its environmental report.

Water Authority general counsel Dan Hentschke said Wednesday that the Water Authority asked for permission to enter the Encina site, but Poseidon denied access.

As a public agency, the Water Authority could use its power of eminent domain to take the plant site. However, such a move could trigger a court battle that could delay building the plant for decades.

What's known

While questions about who's right or wrong in the dispute remain, several things are known.

The Water Authority is banking on seawater desalination. Cushman said this week that by 2020, the agency wants desalted seawater to account for between 6 percent to 15 percent of the county's water supply. Because of a dearth of rainfall and reservoirs to store water, San Diego County imports up to 95 percent of all the water county residents use each year. A seawater desalination plant ---- or plants ---- would help to diversify the Water Authority's supply sources, and protect county residents from running dry.

Southern California will have to reduce its reliance upon the Colorado River. The populations of other Western states that share the river continue to grow, and California signed an agreement in 2003 guaranteeing those states that it would cut its traditional over-use of the river by 2015.

A number of Water Authority officials clearly regret entering into "sole-source" negotiations with Poseidon, rather than seeking other bidders when they entered talks in 2001.

"I kinda wish we had (sought other bidders)," said Jim Bond, the Water Authority board's vice-chairman. "At the time, we didn't know what this confidential agreement was. We just thought it was if they've got some new kind of proprietary information that's really whiz-bang, brand-new stuff, we would keep it secret for them. But we haven't seen anything like that."

Contact staff writer Gig Conaughton at (760) 739-6696 or