Poseidon struggles against eminent domain
desalination in the US
by Larry Chertoff
A dark cloud hovers over desalination plants, planned or pumping, in sun-drenched but water- poor Florida and California. The same cloud shades the future of Poseidon Resources, Inc., desalís most active developer in the United States.
The new Tampa Bay facility in Florida, largest in the county, is mired in legal battles as it struggles to meet acceptance standards; two projects planned for California are in disarray and a planned desalination facility in Texas is taking a breathing spell.
The cause, those close to the issue believe, was an apparently innocent decision of Floridaís Tampa Bay Water Authority to buy the privately developed plant before completion.
Poseidon, after having invested millions of dollars in land and environmental studies, leases, public education and negotiations with the Tampa Bay Water Authority was forced to sell its $110 million plant to the authority. At that time, the original engineer-constructor declared bankruptcy and had been replaced by Covanta. Covanta rushed to complete the plant a meet all financial requirements. But itís parent company, Ogden Energy, well respected in Florida for its successful waste-to-energy plants, had gotten caught in the energy trading turmoil of the early 2000s and it declared bankruptcy. Covanta, with no deep pocket to provide performance guarantees it faced replacement by the new owner, Tampa Bay Water Authority. In a defensive move, Covanta declared bankruptcy and placed itself under the protection of the New York court.
Under court protection, no action could be taken against Covanta without court approval. Tampa Bay Water tried and failed to get approval to remove Covanta as the constructor and operator.
Covanta struggled to meet acceptance standards. It either produced the required 29 MGD for short periods and fouled the RO system or had to operate at half design capacity. Apparently, the pretreatment equipment was either poorly engineered Ė blame Poseidon, or poorly constructed Ė blame Covanta, or poorly managed after change of ownership Ė blame Tampa Bay Water. Each of three parties is quite sure it is not at fault. All of the parties agree only $2 million to replace or rebuild the pretreatment system would set things right.
Covanta canít or wonít make that investment. Poseidon has been taken out of the project, and Tampa Bay Water refuses to spend money to fix Covantaís problem.
Meanwhile Poseidonís big California and Texas projects are stalled in the planning stage waiting for Tampa Bay to be judged success or failure. And, that means, Poseidonís revenues are stalled with it.
The San Diego Water Authority (SDWA), deeply troubled by the unresolved Tampa Bay problems, and succeeding in a plea to receive more water from the Colorado River, chose to suspend its partnership with Poseidon to explore competitive desal proposals from other developers for a 50 MGD project in Carlsbad, CA.
Now, rather than build, own, operate and, in five years, transfer the $270 million plant to the SDWA, Poseidon must go it alone with water purchase agreements from local municipalities. That effort began even before the SDWA decision.
In fact, a week before the SDWA aborted negotiations, the City Council of Carlsbad, CA unanimously voted to pursue a separate water purchase agreement with Poseidon for 25 MGD. It authorized consultants Dudeck and Associates to begin $323,045, year-long, study for an Environmental Impact Review.
If Poseidonís other possible client, the City of Oceanside, takes the 15 MGD under discussion, and interested smaller communities participate, it is likely that Poseidon will contract to sell the full 50 MGD without sales to the SDWA.
Thatís the rub. SDWA wants to sell 50 MGD of processed sea water to the same communities that Poseidon has been courting. And, at exactly same location Poseidon has leased from the Encino power plant.
SDWA also wants all of Poseidonís data gathered in years of work and costing millions of dollars. SDWA wants Poseidonís knowledge to jump-start the environmental review process.
There isnít room at the Encino power plant or water markets, for both SDWA and Poseidon. If SWDA pursues its plan to replace Poseidon in the land lease and partnership with the Encino power plant, Poseidon would be removed from that local market.
SWDAís senior counsel, Dan Hentschke seems willing to use governmentís eminent domain powers to replace Poseidon and retain its monopoly position in producing and selling processed seawater to surrounding municipalities. States in the US have the right to claim private property if it is necessary for the public good. Market value is paid for real property. However, no one involved in the project is very sure of the market value of the 60-year lease on the only acceptable location for a desalination plant. If SDWA gets its way, Poseidon would surrender to SDWA years of confidential research for "the public good."
Would such heavy-handed use of eminent domain withstand a legal challenge? Neither of the parties would hazard a guess and neither plans to back down. Poseidon cannot. Loss of the Carlsbad project would jeopardize itís next California effort in Huntington Beach. The cascading negative effect would damage, if not derail its proposed project for the Brazos Water Authority in Texas. The company expects each project to be 50 MGD and each customer looks the previous one for confidence in proceeding.
Poseidon has no other projects on the front-burner. Without continuing revenue from Tampa, except for a modest management-consulting fee, the company is burning its cash reserves quickly.
SDWA may be able to starve Poseidon to economic death simply by stalling the Carlsbad/Encino in the courts. Or, a successful resolution in the Tampa project may provide justification for SDWA to resume negotiations for a sole-source partnership with Poseidon or step aside to allow Poseidon to supply treated seawater directly to the municipalities.