Poseidon Resources is gearing up for negotiations with Orange County water agencies interested in buying the 50 million gallons of purified ocean water its Huntington Beach Desalination Plant is expected to produce each day.

Eighteen local water agencies have signed nonbinding letters of intent, indicating their interest in purchasing desalinated water. The agencies will meet privately with Poseidon officials Thursday to dive into details that will drive negotiations.

DEMAND IS HIGH

Demand for the water is projected to exceed supply by nearly 43 percent, according to those letters.

Districts that have signed them have requested a total of 80,960 acre-feet of drinking water a year from Poseidon once the plant comes online, anticipated in summer 2017. The plant will produce 56,000 acre-feet of drinking water each year, with each acre-foot enough to meet annual needs for two families of four.

Three options are on the table for how area retailers will get that water from Poseidon, according to Jessica Ouwerkerk, spokeswoman for wholesaler Municipal Water District of Orange County.

Each interested agency could sign an agreement with Poseidon, a process MWDOC would facilitate;

MWDOC could ink a deal with Poseidon and then sign subcontracts with each interested agency; or

MWDOC could create a special district that includes interested agencies that would then pay one fixed rate, which Ouwerkerk said would be somewhere between straight desalinated costs and imported water costs.

HIGHER PRICE TAG

While the rate for desalinated water will undoubtedly be higher than what Orange County residents pay now, Poseidon has staked millions of dollars and 15 years of planning on the belief that customers will be willing to pay more to have “locally controlled, drought-proof” water, as company Vice President Scott Maloni puts it.

“What is the value of that reliability to them?” Maloni said. “That is the question they have to ask themselves.”

A purchase agreement with the San Diego County Water Authority shows desalinated water from Poseidon’s Carlsbad plant, which recently started construction, will increase the average household’s water bill by $5 to $7 a month.

John Kennedy, a senior manager with Orange County Water District, said pressure to keep prices down should be greater here.

While residents in San Diego County are heavily dependent on ever-pricier imported water, nearly all of north and central Orange County has access to water from an underground aquifer. At $266 per acre-foot, local groundwater costs three times less than water pumped in from the Colorado River or Northern California.

Orange County water agencies almost certainly will expect to get some subsidy for buying the pricier desalinated water and saving ground or imported water, Kennedy said. Those subsidies likely would come from Metropolitan Water District of Southern California, which already offers a $250 per acre-foot subsidy to agencies for saving imported water.

One thing that could help keep rates lower for Orange County residents is that Poseidon can take advantage of infrastructure already in place at the AES power plant in Huntington Beach, where Poseidon has leased 11 acres of land for its plant.

Poseidon expects to use AES pipelines to draw and discharge water 1,500 feet offshore in deep seas. The discharged water has a high salinity content, and the state is requiring Poseidon to draw 100 million gallons of ocean water to produce 50 million gallons of drinking water. The distance from shore and the depth of the discharge will allow the high-salinity water to mix with ocean water more quickly, mitigating environmental effects.

In Carlsbad, Poseidon must build needed infrastructure and is discharging water much closer to shore at shallower depths. There, the state said the company must pump three times more seawater to produce the same amount of drinking water, driving up operating costs.

QUESTION OF TRANSPARENCY

As price negotiations advance, water agencies representing more than a million residents have signed confidentiality agreements with Poseidon. Agencies including the cities of Anaheim and Garden Grove and Irvine Ranch and Santa Margarita water districts agreed not to disclose any information Poseidon deems confidential until negotiations are finalized.

That transparency, though, will be with county water retailers rather than directly with the public. Maloni said that’s because interested buyers will be receiving proprietary information that would put Poseidon at a competitive disadvantage with other developers if it were made public.

Staffers with the Trabuco Canyon Water District, whose board approved signing a confidentiality agreement Wednesday, said Poseidon also is looking to avoid “negotiating in the press” the cost agencies should pay.

The caution comes after water district officials in San Diego County told media outlets the company’s Carlsbad desalination plant would increase the average water bill by anywhere from 5 percent to 20 percent each month.

Though Maloni said the confidentiality agreement is “not a critical-path item,” water district officials said they were told they’d be excluded from future discussions such as Thursday’s meeting if they didn’t sign the document.

That’s why East Orange County Water District won’t be participating Thursday. District staff joined a work group to discuss the project, but General Manager Lisa Ohlund said they aren’t able to continue sitting in on talks without the confidentiality agreement in place – and that’s an agreement her district isn’t willing to sign.

As written, Ohlund said, the agreement would prevent the district sharing information even with staff at the city of Tustin, for example, which buys water wholesale through East Orange County Water District and might be interested in striking a deal with Poseidon itself. Also, Ohlund said, her board is uncomfortable with the potential overlap between what public agencies such as hers are required to disclose and what Poseidon could potentially ask them to withhold.

Staff writer Jaimee Lynn Fletcher contributed to this report.

Contact the writer: 949-454-7343 or bstaggs@ocregister.com