LOS ANGELES — The Orange County Water District, Calif. board of directors voted to enter into formal negotiations with Poseidon Water to build a $900 million seawater desalination plant in Huntington Beach.
The 9-1 vote by the water district's board on Jan. 7 represents a significant step forward for the project, said Scott Maloni, vice president of Poseidon Water.
The public-private partnership would involve Poseidon producing 56,000-acre feet of water for the water district.
Poseidon withdrew its application to the California Coastal Commission last year in order to conduct a study on whether alternative methods of removing water from the ocean would be less environmentally impactful. The commission also wanted to know how much water would be produced by the plant and who its customers would be, which are questions answered through the negotiation agreement, Maloni said.
The decision by the water district board comes after an 18-month due diligence process. The district's independent financial consultant, Clean Energy Capital, issued a final report in December on Poseidon's cost estimates and offered different methods of financing the project.
Among the alternatives the OCWD asked the consulting firm to evaluate are those that would have the water district taking on more risk than the San Diego County Water Authority did for the very similar Poseidon Carlsbad desalination plant under construction 60 miles south.
The risk would come if the triple-A rated OCWD issued the bonds itself rather than in a structure similar to SDCWA, where Poseidon and bondholders took on the lion's share of the risk.
In Huntington Beach, under Poseidon's proposal, two sets of bonds totaling $732 million would be issued through a conduit issuer such as the California Pollution Control Financing Authority. There would be $123 million in tax-exempt governmental bonds issued on behalf of the water district to finance construction of the pipeline from the plant, and $608 million in private-activity bonds, subject to the alternative minimum tax, for Poseidon to finance construction of the plant. Another $160 million in private equity would come from an unnamed source.
Poseidon is open to discussing concepts involving sharing ownership with the water district, but the San Diego project also has proven that a financing approach where Poseidon takes on the risk is financeable, Maloni said.
"If OCWD wants to depart from that proposal we are all ears, but we need to understand how that effects allocation of risk," he said.
Poseidon plans to submit its application to the Coastal Commission in March or April in the hope of receiving approvals by the end of year, so it can start construction in 2016. A similar desalination plant in San Diego anticipated to produce 50 million gallons of water a day is expected to come online this fall.
