San Diego approves pact for desalinated water

SAN DIEGO (AP) -- A regional water agency approved a contract Thursday to buy the entire output of what would be the Western Hemisphere's largest seawater desalination plant, clearing the way for construction to begin early next year.

The San Diego County Water Authority board backed the 30-year deal with Poseidon Resources LLC, which needed it to sell investors on bonds that will finance more than 80 percent of construction of the $984 million project. The plant in Carlsbad is designed to produce 50 million gallons of highly purified drinking water a day, enough to supply about 8 percent of the region in 2020.

The agency will pay $2,042 to $2,290 for an acre-foot of water, more than twice what it cost to bring water from Northern California and the Colorado River on hundreds of miles of aqueducts. But backers of the project say the premium is well worth the protection it provides against drought and predict the price differential will diminish over time. The region imports about 80 percent of its water.

"It's absolutely critical to our region's water reliability and economic stability. It's another historic step toward making us less vulnerable to drought and the severe competition for water that we import," said San Diego Mayor Jerry Sanders.

The decision was being closely watched, especially in California, where the plant is the furthest along among about two dozen proposals in various stages of planning. Desalination has helped quench demand in Australia, Saudi Arabia and other countries lacking fresh water, but it has been slow to catch on in the U.S.

Peter MacLaggan, a senior vice president at Poseidon, said the Carlsbad plant would likely make it easier for other projects to get approved in California.

"We just need to look closer to home for our future resources, and this is a small toward a long-term transition," he said.

The San Diego agency, which acts as a wholesaler to 24 cities and agencies including the city of San Diego, struck a tentative deal in September with Poseidon, a Stamford, Conn.-based company that also wants to build a huge desalination plant in Huntington Beach, south of Los Angeles. Since then, skeptics have questioned the cost.

Pacific Institute, an Oakland-based group that studies environmental issues, said in a report this week that San Diego should consider lowering its minimum annual purchase of 48,000 acre-feet, or enough to supply about 96,000 homes. It said large plants built in Australia over the last several years are unused in response to lower demand and cheaper alternatives. Likewise, a big plant in Tampa, Fla., that was planned during boom times in the 1990s was completed in 2007 after long delays and is operating well below capacity.

The San Diego agency estimates that the average household bill will increase $5 to $7 a month when deliveries begin in 2016. It figures the cost is comparable to other new, local sources of drinking water.

Poseidon proposed the plant in 1998 and began negotiating with potential customers shortly after the California Coastal Commission approved it in 2009, clearing the last major regulatory hurdle. The company overcame challenges from environmentalists concerned about the plant's massive electricity needs and harm to fish and other wildlife from intake filters and brine that is dumped back into the ocean.

Backers of the project averted a last-minute snag when the city of San Diego proposed shifting costs shift more costs to smaller agencies that don't have their own water treatment facilities. The board agreed to decide later on how the costs will be shared.

"I guess we're going to fight over the next couple years about how all this gets divvied up," said Mark Watton, general manager of the Otay Water District, one of only four agencies that opposed the contract, in part, because it felt the costs will prove higher than expected.

San Diego began to consider desalination in the early 1990s, when a drought led it to conclude that it needed a more diverse, reliable water supply. The agency is also considering giant desalination plants at Camp Pendleton Marine Corps Base and Playas de Rosarito, Mexico, just south of the U.S. border.