Poseidon's Financial Shell Game: Why Is a Private Desalination Plant Asking for Public Money?

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.

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.