Poseidon disputes FWW Carlsbad finance figures

Poseidon Resources described as “erroneous information” figures in a press release issued on 30 October 2009 by consumer group Food & Water Watch (FWW) related to finance for the Carlsbad desalination project.

Project owner Poseidon has submitted an application to the California Debt Limit Allocation Committee (CDLAC) for up to $530 million in private activity bond (PAB) allocation (federal tax free) from the annual private activity bond pool that CDLAC administers. CDLAC is scheduled to consider Poseidon’s request at its meeting later in November.

FWW reported the amount as US$ 550 million and stated that this was a US$ 70 million increase on a previous figure. Its release said that no explanation had been given for the increase.

Scott Maloni for Poseidon told D&WR, “Our original application to CDLAC was increased from US$ 480 million to US$ 530 million, due to updated estimates on bond insurance, required reserves, construction costs of the pipeline and plant (now that all approvals have been secured and mitigation requirements are known) and capitalized interest costs during construction.”

“Obtaining a private activity bond allocation in 2009 is critical for the project’s public water agency customers,” Maloni says, “because, unlike in typical years, where over 80% of the annual pool goes to multifamily housing and other assistance to certain housing sectors, the Carlsbad project could receive its full allocation in 2009 or at least a substantial portion because these other markets have stalled, and so there are very few alternative demands on CDLAC’s US$ 3.4 billion pool for 2009”.

Typically an exempt project such as Carlsbad could only receive up to US$ 100 million of allocation in one year and must reapply for a number of years to request more allocation, while in the meantime having to raise higher cost taxable debt and using short-term financing at risk of rising rates.

Maloni says that “the bonds help the ratepayers in several ways by lowering the cost of the project financing. The financing costs are built into the base cost of the project, including the delivery costs, which are a direct pass-through to the ratepayers, so lowering the financing costs will allow Poseidon to provide a less expensive rate of water over the 30-year life of the project.”

The Metropolitan Water District is also to meet soon to consider a memorandum of understanding related to a US$ 250/acre-foot (US$ 0.20/m³) subsidy to the water agencies that will purchase the Carlsbad water from Poseidon, to be paid for by a water consumer surcharge.

Last month, Surfrider Foundation, San Diego Coastkeeper and the Coastal Environmental Rights Foundation filed a joint request for revocation of Poseidon’s permit application, the approval of which is imminent from the California Coastal Commission.