Special Reports
Water, Water, Everywhere...

By Kathryn Kranhold
Wall Street Journal
January 17, 2008

Seeking Fresh Sources, California Turns To the Salty Pacific, But Desalination
Plants Face Criticism on Environment, CostsArticle

Water-short California's search to satisfy its thirst is beginning to focus on a
controversial source -- the Pacific Ocean.

In November, Connecticut-based Poseidon Resources Corp. won a key regulatory
approval to build a $300 million water-desalination plant in Carlsbad, north of
San Diego. The facility would be the largest in the Western Hemisphere,
producing 50 million gallons of drinking water a day, enough to supply about 100,000 homes.

Taking the salt out of seawater is a common way to produce drinking water in the
Middle East and in other arid regions. World-wide, 13,080 desalination plants
produce more than 12 billion gallons of water a day, according to the
International Desalination Association.

Tampa Bay Water's desalination plant in FloridaBut it has been less successful
in the U.S. Desalination is more expensive than traditional sources, and critics
say it harms the ocean. In 1992, Santa Barbara, Calif., shuttered a small plant
after three months when rain replenished the county's main water sources. At a
plant near Tampa, Fla., that Poseidon was also involved in, technical glitches
increased the water's cost and, when it opened in 2003, initially limited output
to less than a third of the projected 25 million gallons a day.

Southern California water officials say conditions have changed. Improved
technology has cut the cost of desalination in half in the past decade, making
it more competitive. And traditional water supplies, such as the Colorado River
and snow-melt runoff, are becoming less reliable because of population growth
and environmental restrictions.

"We have to get our water from somewhere, and it's going to be the Pacific
Ocean," says Gary Arant, manager of the Valley Center Municipal Water District,
which serves farms and homes around San Diego. His district has agreed to buy
almost 15% of the Carlsbad plant's output. Poseidon says it has signed 30-year
contracts with nine local water districts to sell all the water; about 40% would
go to the city of Carlsbad.

The project has attracted big financial partners. In May, General Electric Co.
said it had invested in it and would provide filtration technology. In
September, Citigroup Inc.'s sustainable-development-investments unit became the
lead investor in closely held Poseidon, formed in 1995 by former GE executives
and private-equity firm Warburg Pincus. Andrew de Pass, the Citigroup unit's
managing director, says the need for long-term water sources drove the
investment. He declined to specify how much Citigroup invested.

Poseidon hopes to break ground this year and deliver water no later than 2011,
providing it wins approval for its plans to mitigate the plant's impact on
marine life and to offset its carbon-dioxide emissions.

The plant would initially take the saltwater discharged from an adjacent power
plant that uses it for cooling, and later take water directly from the Pacific.
Two sets of filters purify the water. The first set, thin tubes resembling rows
of angel-hair pasta, blocks relatively large particles. The seawater is then
pumped at very high pressure through dense membranes to remove salt, in a
process called reverse osmosis.

This process uses a lot of electricity, contributing to its big price tag.
Poseidon plans to sell the water for about $950 per acre-foot. That compares
with an average $700 an acre-foot that local agencies now pay for water. (An
acre-foot is 325,851 gallons, enough water for four people a year.) The
Metropolitan Water District, a wholesale supplier to 18 million Southern
Californians, will subsidize the difference as a way to add new water sources to
the region. Poseidon President Walter Winrow says Poseidon will raise its price
as local agencies pay more for water from other sources.

Peter Gleick, head of environmental think-tank Pacific Institute, says the costs
of desalination projects tend to increase from those projected by sponsors,
because of energy expenses and environmental requirements. "What people claim is
always a little different," says Mr. Gleick.

There are other obstacles. California coastal regulators and some
environmentalists say desalination uses too much energy and kills fish when the
water is processed. Two environmental groups Monday filed suit to block the
plant, on the grounds that it will harm marine life. Peter MacLaggan, who
oversees the Carlsbad project for Poseidon, says the plant would kill about two
pounds of fish a day, or "less than the daily consumption of one pelican."

Some opponents are wary of Poseidon because it was originally the co-developer
of the troubled Tampa plant. Poseidon and the engineering firm it was working
with estimated in 1999 that the plant would cost $110 million to build and
produce water costing an average of $677 an acre-foot.

Then two engineering firms involved in the plant ran into financial
difficulties, slowing work on the project.

In 2002, Tampa Bay Water, the government agency building the plant, bought out
Poseidon and took on plant oversight. Tampa Bay Water ultimately brought in
other companies, including units of Spain's Acciona S.A. and Germany's RWE AG,
to finish and run the plant.

Last month, years behind schedule, the plant was declared fully operational,
producing more than 25 million gallons of drinking water a day. Exceeding the
initial estimate, construction came to $158 million, and the desalinated water
costs $1,100 an acre-foot. Tom Pankratz, a Houston-based consultant to Tampa Bay
Water's lawyers and a spokesman for the IDA, says there was "sloppy work" across
the board. Poseidon's president, Mr. Winrow, says the company "would have
managed the construction more appropriately" if it had been allowed to finish
the project.

Ken Herd, Tampa Bay Water's operations director, says the plant is mostly
running smoothly and the region may build more plants. Desalination is "not the
cheapest source of supply, but it's drought-proof," he says.

Southern California officials toured the Tampa Bay plant before signing with
Poseidon on the Carlsbad plant. Poseidon has brought in Acciona and RWE'S
American Water to design and operate it.

Meanwhile, improved membranes and pumping systems have sharply reduced
electricity costs. G.G. Pique, chief executive of Energy Recovery Inc., which
makes desalination technology for the plant, estimates it will cost the Carlsbad
plant $1.10 in electricity to produce 1,000 gallons of water. That is down from
$2.10 per 1,000 gallons at the mothballed Santa Barbara plant, which he was also
involved in.

The push on the Carlsbad plant comes as the National Academy of Sciences nears
completion of a report on the potential role of desalination in meeting U.S.
water needs.

Water experts are watching closely. California regulators are mulling as many as
20 proposed seawater projects that could produce 500 million gallons of water a
day for the state. Poseidon is planning a second major plant in Huntington
Beach, about 60 miles north of Carlsbad. "We're excited about the prospects,"
says Mike Chrisman, California's Secretary of Water Resources.


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