Peter Gleick: Giving Desalination Another Black Eye — Poseidon’s Financial Shell Game

Last week, I wrote about the demand by the Poseidon Group to receive two major public subsidies to build a private desalination plant at Carlsbad near San Diego. After years of claiming that they needed no public support to build this plant, this claim has finally been proven false. The private profits they need will only be possible with public subsidies.

Water Number: $350 million in public subsidies to a private group. Earlier this week, one of the subsidies demanded by Poseidon was granted. The Metropolitan Water Board approved a subsidy of up to $250 per acre foot per year for 25 years, which will make MWD customers pay more for water than they would otherwise have paid, with the profits going to a private company. Up to $350 million over 25 years.

Peter Gleick
Dr. Peter Gleick is president of the Pacific Institute, an internationally recognized water expert and a MacArthur Fellow.

This decision by MWD effectively proves two things: first, that desalination, as envisioned and designed by Poseidon, remains a premature and expensive choice for California. Second, that for all of Southern California’s claims of improved efficiency, it is still easier for water agencies to spend $2 (or $3 or $4) to build a water-supply project than to spend $1 to get the same water through water-efficiency programs.

I’ve argued before, and I say again, I believe this project will give a black eye to the reputation of desalination, all because of intensive efforts to gain private financial benefit on the backs of the public.

In the end, it was clear the project would not go ahead without public subsidy. “The project will not be financeable,” said Steve Howard of Barclays Capital, which is advising Poseidon on financing. He admitted that the MWD subsidy would provide 15% to 20% of the project’s revenue in its early years, without which the profit Poseidon has promised its private financers would not materialize. In fact, this money is probably almost exactly the profit Poseidon has to generate for its investors.

Mitch Dion, a director of one of the water districts buying the expensive water, said, “Without it [the MWD subsidy], the project will die.”

It should die. Until a proposal for desalination is made that meets all environmental standards, is financially sound, economically superior to alternatives, and actually reduces dependence on other, unsustainable sources of water, projects should be rejected. Public subsidies for these private projects should be rejected as well. And the MWD Board should be ashamed.

In the meantime, it would be interested to see exactly what financial returns have been promised to Poseidon and its funders — money that will come from water ratepayers and MWD. Is that information and the details of the financing agreements available to the public that is throwing in so much money? What salaries are being drawn by Poseidon executives, and how do they compare to the salaries of the public water agencies that should build our water systems? Don’t hold your breath that this information will be forthcoming.

Peter Gleick

Dr. Gleick’s blog posts are provided in cooperation with the SFGate. Previous posts can be found here.

0 replies
  1. Debra Coy says:

    C’mon, Peter – this is unfair. Why indict the private sector for the public sector’s failure to encourage conservation and water reuse? The public sector is responsible for properly pricing the water it supplies, and the apathy about conservation is because water is so under-priced in California, thanks to decades of federal subsidies, as you know. Poseidon and its investors wouldn’t have gotten involved in the Carlsbad project if Met and the San Diego County water districts had the political will – and access to financing – to do it themselves. After all the years and money invested, I very much doubt that Poseidon’s financial returns on this venture will be egregious; they will be lucky if they earn any return at all. Met’s decision to subsidize desalination projects was a public policy decision to try to diversify water supplies, one which hasn’t been terribly effective to date. Their decision to significantly raise wholesale water rates has been more effective – conservation is taking hold as ratepayers who live in the desert are finally beginning to get proper pricing signals for imported water. I am quite surprised that you are still stooping to focus the debate on Poseidon executives’ salaries – that’s empty populism without policy substance.

    Debra Coy
    Water Sector Research Analyst

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