Showdown at the OCWD Corral nears; R4RD fires volley at Poseidon Term Sheet.


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poseidon questionVern here.  I’ve been guilty of thinking, and communicating, that each new development in the OCWD/Poseidon courtship is the final and irreversible one, which could lead to a boy-who-cried-wolf situation.  BUT

  1. each new step forward is another centimeter of the camel’s nose in the tent, a little more of the “tip” of the Poseidon missile up inside you and me;  AND
  2. this Thursday’s meeting IS a big deal, where the Board will hear the “concerns” of their Citizens Advisory Committee and vote yes or no on whether to proceed with the (supposedly non-binding) Term Sheet to buy Poseidon’s overpriced unnecessary water for the next 50 years – on your dime and mine.

So I’ll see you there, 5:30 Thursday night, at the OCWD headquarters in Fountain Valley, Ellis and Ward.

I had planned, and still hope, to grab an interview with a few more of the directors, as I did with Phil Anthony, directors who have said interesting things suggesting they could still be on the fence.  But I have so far been stonewalled by Roger Yoh, Denis Bilodeau (allegedly in Canada), Roman Reyna and Dina Nguyen.  Return my calls guys!

I’m working on a piece connecting this unnecessary Poseidon plant with Orange County’s stubborn addiction to development, particularly high-density development.  But meanwhile, the worthy group “Residents For Responsible Desalination” has written a masterful critique of OCWD’s behavior so far, especially if they accept this term sheet (Latest revised version here, pages 10 to 40, revisions in red.)  And here with their permission I shall reprint it.  Here’s “R4RD”…

OK corral

RE: Comments on the May 2015 Poseidon/HB Term Sheet

OCWD Board & Staff,

Residents for Responsible Desalination (R4RD) appreciates the opportunity to comment on the draft Poseidon Resources (Surfside), LLC Term Sheet. We are including comments on the proposed budget to review a contract to purchase water from the proposed Poseidon Resources’ seawater desalination facility in Huntington Beach.

R4RD supports some of the work outlined in the budget as first steps to identifying means to a local and reliable water future. Nonetheless, those first steps should be completed before “sending a signal” that the Orange County Water District (OCWD) is interested in purchasing product water from Poseidon. Only after a thorough analysis of future demand management and supply alternatives, should OCWD consider seawater desalination a necessity in the supply mix. Further, should OCWD decide seawater desalination is an absolute necessity, a project proposal should consider alternative sites, designs and technologies through a competitive bid process.

OCWD staff’s time spent to-date on this proposal has not moved it any closer to finalization. The Clean Energy Capital (CEC) financial analysis was wasted money on a proposal that no longer exists. And the proposed quarter of a million dollars for more staff time and consultants is simply “throwing good money after bad.” It would be irresponsible for OCWD to move forward without first conducting thorough due diligence in a comprehensive “Reliability Analysis.”

R4RD and its coalition partners challenge the entire premise for the proposal:

  • Poseidon and its supporters say, “We need this facility even if we fully exhaust the preferred alternatives.” But they offer no facts to support the statement. In fact, the staff report proposes to explore the statement after the Term Sheet approval;
  • Poseidon and its supporters repeatedly say the project will be environmentally benign. They offer no support for the statement. In fact, the State agencies mandated to protect the environment have made it perfectly clear the Poseidon proposal is not of the best site, design, and technology for minimizing adverse environmental impacts.
  • Poseidon and its supporters claim the enormous cost of the facility is worth the “reliability” that such cost provides. Again, there is no support for the statement. In fact, the OCWD staff report makes it clear that, without an alternative analysis for feasibility, there is no benefit/cost analysis to justify the price. Staff has made it clear that the term “reliability premium” does not mean the cost for adding reliability to the portfolio. Staff told the community that it should think of the “reliability premium” more in terms of ensuring financial reliability for Poseidon investors. Overall, the term “reliability” has no comparative analysis—reliability compared with what?

Despite having fifteen years to perfect the project proposal, Poseidon has not prepared for and adapted to changing times—even when the changes were predicted by the community over a decade ago. This project is not yet ready for consideration; and that lack of preparedness is due to Poseidon’s stubborn resistance and narrow focus on investor returns instead of public service. OCWD does not have permission from R4RD members and supporters to spend another penny on this proposal before alternatives are fully considered and adopted. Do not put these additional expenses in our water bills—we will protest by all legal means available.

R4RD has closely followed the proposed Poseidon-Huntington Beach seawater desalination project since 2003. The project’s product water has always been presented as becoming cheaper than MET imported water at sometime in the future. In 2003, the product water was to be cheaper than imported water by 2011; in 2005, the crossover point was 2016; in 2010, it was 2026; in 2013-14, it was 2038. Now, in 2015, Poseidon presents a Term Sheet that states the product water will not be less than imported water for the next 50 years, the life of plant and throughout the contract term (or ever).

In addition, Poseidon’s Term Sheet “indexes” its price for product water on the cost of imported water plus 20% plus a yet undetermined MET subsidy of $475/AF. R4RD strongly believes that indexing product water price to completely unrelated imported water cost is inherently unwarranted. Furthermore, The MET subsidy is public money that somehow, someway has to be recovered from the ratepayers through higher rates. In essence, Poseidon, by indexing its price on future costs of MET imported water, will “double dip” on the MET subsidy by receiving the subsidy plus the cost of treated MET water plus 20% premium on the cost of that water and any subsequent rate increases in that cost.

Finally, it is uncertain what “reliability” benefits may result from the project considering the reliance on the MET subsidy. All indications suggest the subsidy will include provisions requiring reduced allocations of imported water. Imported water has been reliable but for the times when MET must reduce allocations during droughts. However, it appears during those times, when “reliability” is at its lowest, the agreement with MET will require even more reductions in imported water to Orange County in return for the subsidy. But these provisions won’t be finalized until Poseidon gets final permits for the proposed project – permits they have chosen not to apply for. Given the uncertainty of the conditions that come with receiving the MET subsidy, it is impossible to quantify the reliability benefits, much less justify a “reliability premium.”

“Moving Forward”

In the staff presentation there are four recommended steps to “Moving Forward” if the Board approves the Term Sheet. We recommend a different order to those steps, and an additional step, prior to considering the Term Sheet.

Step One

The first step in planning must be the “Reliability Analysis” – the step that is oddly listed last in the staff report and apparently an afterthought once the Term Sheet is approved. This analysis must be completed before approving a Term Sheet.

R4RD members understand there are efforts already underway to better estimate future demand, and potential agency plans to meet those demands. Also, as the current drought illustrates, we must be prepared for more intense dry periods in the future. However, climate science also indicates our future includes more intense rainfall and less snowpack. This means a much more holistic review of water management is necessary. It also means better planning and investment in not only permanent conservation efforts, but major changes in infrastructure and land use to reform the urban landscape so rain is captured and stored in the groundwater basin to ensure future reliability.

As the area grows in population, wastewater recycling will become even more critical to reliability. OCWD should not be considering the advancement of wastewater recycling in a vacuum. As more southern California jurisdictions copy the example of OCWD’s Groundwater Replenishment System (GWRS), and/or Direct Potable Re-use (DPR) becomes available, imported water will become less necessary and more sustainable and reliable regionwide.

Additionally, the need to replace or rehabilitate existing infrastructure should be a higher priority. Putting expensive desalination water into an aging and leaky infrastructure can hardly qualify as a “reliable” future. Furthermore, because adaptation for climate change requires both preparation for more intense dry weather and more intense rainfall, we need to re-think our imported water supplies. Arguably, OCWD should be going beyond just reducing reliance on imported supplies. OCWD should consider taking full advantage of the groundwater basin by keeping it full during periods of intense rainfall statewide, and entering future droughts with full storage available and the lowest possible demand on the basin.

These alternatives are preferable from both an economic and environmental perspective. However, prioritizing investments in seawater desalination will only serve to limit available funding for preferred alternatives. And until the planning for preferred alternatives is complete, there is no way to estimate the need for seawater desalination. Approving a Term Sheet for Poseidon’s pre-determined site, design and technology is premature and sends the wrong message to ratepayers. The staff should be instructed to take the first step of a through and comprehensive “Reliability Analysis” before the Board ratifies the Term Sheet.

Step Two

After a thorough analysis of preferable alternatives for a reliable water future defines a need for seawater desalination (if the need is defined), the OCWD should consider site, design and technology alternatives, as well as competitive bids, for construction and operation of a seawater desalination facility.

OCWD has been told, and we hear it often repeated, that Poseidon offers assets and values that preclude consideration of alternatives or competitive bids. For example, it is often said Poseidon has certified EIRs and all the permits needed but one—its Coastal Development Permit (CDP). We also repeatedly hear Poseidon has an exclusive entitlement to the property on the AES site. However, we recently heard at the Citizens Advisory Committee that, in fact, the permits Poseidon claims to have are all temporary and Poseidon must re-apply for permits to allow operation after 2020. Further, we hear that Poseidon refuses to disclose the lease with AES, and it is likely that lease has expired and been renewed several times—meaning it is not an exclusive right. In short, it is unclear any of the “assets” Poseidon claims to have are of any value; and consequently it is unclear why the OCWD would not announce Requests for Proposals from competitive bidders, or consider sub-contracting the construction and operation yourselves.

Furthermore, the recent approval of statewide regulations for future seawater desalination facilities make it clear the Poseidon proposal will need considerable more work before being permitted for construction and long-term operation. The rules include a presumption that future projects will employ sub-surface intakes, that project proponents must search for a site that is likely to support sub-surface intakes, and that the design of the facility must be consistent with these preferable intakes unless they are absolutely infeasible.

Further, the new regulations clearly prohibit “augmented intake for in-plant dilution” which is a major part of Poseidon’s current project proposal. In brief, the Poseidon proposal is not consistent with statewide regulations and cannot be permitted as currently planned.
Again, Poseidon has none of the assets it claims. Therefore, no reason exists why OCWD would not reconsider the need for seawater desalination and alternatives to what Poseidon is proposing before approving the Term Sheet.

Conclusion

The recommendations above are not new. The community has been making these observations and recommendations for over a decade. Poseidon had a business plan to co-locate with existing power plants in order to utilize the intake and discharge infrastructure. Despite warnings that this infrastructure would soon be outlawed, and even after that happened, Poseidon stubbornly refused to change plans. The deadline for AES to comply with the mandate to discontinue withdrawing seawater is 2020, and Poseidon’s temporary permit will expire.

Now the State regulations have made it clear the Poseidon project proposal is inadequate, and will not be sufficient for permit renewal from the Santa Ana regional Water Quality Control Board, not a new permit from the California Coastal Commission. But Poseidon is in control of the necessary applications for permits. And until Poseidon applies for those permits, there is absolutely no urgency for OCWD to approve a Term Sheet. In fact, many of the variables in the cost and the MET rebate can only be estimated after Poseidon applies for the permits.

This is exactly what R4RD has been trying to tell OCWD for years; and it is clear we were right and Poseidon was misleading the Board and staff. Now the OCWD has an opportunity, if not an obligation, to reconsider preferred alternatives to seawater desalination and/or alternatives to Poseidon’s proposed facility.

It would be irresponsible for the Board to approve the Term Sheet now. The stated purpose of “signaling a desire to explore in much greater detail the exact terms of a final Contract” would be misleading at best. In fact, the Board should send the opposite signal. The Board should make it clear to staff, Poseidon and the community that, given it is unlikely the Poseidon facility can be constructed and operated as proposed, OCWD will be engaging in a thorough Reliability Analysis before making any decisions about the priority of future investments.

Again, we appreciate the opportunity to submit these comments.

Regards,
-Dave Hamilton, v.p.
Residents for Responsible Desalination


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