San Diego County agency asks Obama for $175 million for Carlsbad desal project

Dec. 25--CARLSBAD -- Poseidon Resources Corp.'s proposed desalination plant would get its own economic stimulus, if a $175 million federal funding request from the San Diego County Water Authority is approved.

Construction on the plant, which would convert seawater to drinking water for thousands

Meanwhile, a global credit crunch has made such projects difficult to finance. Officials at Poseidon, which hasn't secured financing, say they are confident funding will be available by the middle of next year.

The Water Authority's request for federal cash is included in a lengthy wish list county agencies submitted to the incoming administration. President-elect Barack Obama has said he intends to jump-start the faltering economy with massive public works projects.

Both Poseidon and the nine public agencies that have signed a 30-year contract for the desalinated water stand to benefit if federal funding is approved. The money would help pay for a pipeline and pumping station to deliver the desalinated water to the water system.

With the $175 million, Poseidon will break even on the desalination plant earlier than originally projected, said Scott Maloni, a vice president with the company. In turn, Poseidon would speed up the date when it begins sharing cost savings from desalinated water with customers.

Desalinated water is now more costly than imported water, but Poseidon has guaranteed its customers they will not pay any more than the cost of imported water they would have otherwise purchased.

The Poseidon plant is scheduled to begin construction in mid-2009. Situated in coastal Carlsbad, the plant would be capable of making 50 million gallons of fresh water a day from sea water, 9 percent of the county's total water consumption.

Poseidon, based in Stamford, Conn., has to pay the $300 million cost of building the desalination plant itself. The company intends to raise the money from private investors.

Desalinated water now costs $1,000 per acre-foot, compared to $750 per acre-foot for imported water. An acre-foot is roughly the annual consumption of two families of four. Water agency subsidies will make up the difference to buyers, so the base cost to them is the same, Maloni said.

However, there is a further cost of between $225 to $275 per acre foot to convey the water from the plant to customers that is not subsidized. Poseidon is responsible for that cost as well, because the San Diego County Water Authority will not pay for it, said spokesman John Liarakos.

"We are eating that cost in the early years," Maloni said.

That cost for the "conveyance facilities" of pipelines and a pumping station is where the $175 million federal money would be directed.

Poseidon did not ask the water authority to apply for the money, Maloni said, it was the authority's idea because the money would result in lower water costs for customers.

The key to the plant's viability is Poseidon's projection that the cost of imported water will eventually exceed that of desalinated water. Poseidon can then begin making a profit on the plant. When all the money Poseidon invested has been paid back, Poseidon will then split the difference between the cost of imported and desalinated water with the agencies.

"Our public customers (will be) paying less than the cost of imported water, but more than the cost of desalinated water," Maloni said.

Maloni said Poseidon is making contacts with potential investors to raise the construction money, but doesn't expect to close a deal for a few months.

"Our schedule has us breaking ground in the middle of '09," Maloni said.

"We will probably close financing after the end of the first quarter," he said. "We've been out talking to people, J.P. Morgan, Goldman Sachs, there's a lot of interest out there, but we're not trying to finance it now."

"The reality is if we tried to finance today, we probably couldn't," Maloni said. "But we don't need to. We're not going to finance until after the first quarter of next year, when we think things will be significantly different than they are today.

"What we're hearing back from our financial advisors is that we're being viewed as a very conservative borrower, because we have a water infrastructure project with tremendous need; we have these 30-year contracts, which are essentially 30 years of guaranteed revenue from public water agencies that have outstanding credit ratings."

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