Tampa Bay Desalination Project - an unfinished story

By Honey Rand, Ph.D.

Three feedwater mains are coming from the Teco power plant cooling system. The Environmental PR Group

Larger seawater desalination plants are operating in the Mediterranean and Middle East regions, but the US$ 108-million Tampa Bay Desalination Project on Florida's Gulf Coast is the largest of its kind in a highly regulated environment. Consequently, everything from siting and permitting through construction and the cost of water is under intense scrutiny by US federal and state regulators.

Ironically, despite the attention, there's a lot of confusion about who played what role in the process to bring desalinated water to the Tampa Bay region, what it costs, how it is being paid for, and what problems are causing delays.

Aerial view of the Tampa Bay Desalination Project under construction. The Environmental PR Group

The road to seawater desalination in Tampa Bay was a long one. For years, former Navy personnel wrote letters to newspaper editors and to the regional water regulator telling them that they could solve the water supply problem with seawater desalination. For years, conventional wisdom claimed that desalination was too expensive, could not produce enough quantity, and left a huge disposal problem.

In 1994, Mark Farrell, P.E., the assistant executive director at the regional regulator began investigating desalination as an alternative water supply. Four years later, the regional water wholesaler, Tampa Bay Water, included desalination as part of its new water supply plan to provide about 10 percent of the region's needs – 25 million gallons.

The regional regulator, the Southwest Florida Water Management District, investigated the feasibility of seawater desalination and became so convinced that it offered to provide up to US$ 85 million toward the cost of the plant. The district's goal, according to spokesman Michael Molligan, was to develop new water supplies and reduce the demand for groundwater. The district negotiated cutbacks to wellfield pumping in exchange for its investment into desalination and other alternative water supply projects.

Much confusion remains over the cost of desalinated water in Tampa Bay and the effect of the district's investment on the final price. To many people, the final costs are still unknown. Mark Farrell, now a principal with Water Resource Associates in Tampa is one. "There have been a lot of changes made since the original developer sold the plant," Farrell noted. "It's just not as clear now."

Tampa Bay Water selected Poseidon Resources of Stamford, Connecticut, USA, after an open competition for a private partner in the project. Poseidon Resources, upon winning the contract, was required to make at least a ten percent investment in the desalination plant. This ownership position was meant to provide additional incentive for project success. Poseidon's job was to permit the plant, operate a pilot plant to ground-truth proposed systems, and put the plant online in accordance with a water purchase agreement. As a DBOOT (design, build, own, operate and transfer) project, the agreement presumed that Poseidon would assume risk for the plant's development. "DBOOTs are all about limiting the risk," Farrell said.

Final polishing of feedwater takes place in low pressure vessel containing cartridge filters before entering high pressure RO vessels. The Environmental PR Group

Eugene Schiller, deputy executive director for management services at the district suggests there's much more to the approach. In a paper prepared for the National Council on Public Private Partnerships, Schiller points out that DBOOTs reduce costs while keeping tight government control, flushing out flaws in proposals and typically achieving lower prices through competition. As important, Schiller pointed out that the DBOOT approach allowed Tampa Bay Water to leverage the efficiencies of the private sector and still take advantage of the tax-free financing available to governments. And, like Farrell, Schiller says that the DBOOT approach minimises risk to participating governments by requiring pay for performance. If the plant worked, the company was paid, if it didn't, no payments would be made.

The DBOOT process demonstrated value when Stone and Webster and Covanta each had financial problems. In July 1999, Poseidon Resources originally selected Stone & Webster to design, engineer and build the plant, but the company went bankrupt. Poseidon then brought in Covanta Energy of Fairfield, New Jersey, in December 2000 to take over responsibility for plant construction. Despite the effects of the 11 September 2001 World Trade Centre disaster on its engineering, procurement and construction (EPC) contractor and the financial markets, Poseidon Resources kept the project moving forward-on time and budget. According to Schiller, this is a key benefit of DBOOT for governments - protection from system design and operation failure or other unanticipated events.

More than that, the DBOOT approach can save governments at least ten percent on construction costs, according to a recent report prepared by the St. John's Water Management District. In a presentation on 15 July 2003, Barbara Vergara, P.G. showed a group looking at new water sources a list of advantages to the DBOOT approach using the Tampa Bay desalination plant as an example. Among the reasons to choose DBOOT, she explained, are reduced costs, reduced risk and guaranteed performance.

Early acquisition

In Spring 2002, Tampa Bay Water decided to acquire the desalination plant, which was about 50% constructed. According to Tampa Bay Water, the biggest risk for the desalination plant was in the permitting. Poseidon Resources with the help of King Engineering, a local consulting firm, had successfully completed permitting, defended a challenge to the permit, and moved the project to a point where it could be assumed by the public sector with substantially less risk, Tampa Bay Water said.

While it was never contemplated that the plant would be acquired at 50% construction, Poseidon and Tampa Bay water successfully negotiated a transfer agreement, and the public-private partnership became a standard DBO (design, build and operate) project with Covanta Water remaining as the EPC. Poseidon Resources remained in an advisory capacity for a year.

The Teco power plant at Apollo Beach. The Environmental PR Group

"Taking a DBOOT project at 50% is very unusual," explained Farrell. "They took it too soon. DBOOT is all about managing risk and now Tampa Bay Water has all the risk with significant operational issues that are still outstanding."

Process problems

The plant has operated briefly, but it has been plagued with problems. Farrell reports that membranes are lasting months instead of years and cartridges that should last months are lasting for weeks. "The original developer had a pilot plant that tested the system design for about 18 months," said Farrell. "These treatment problems are a mystery." Tampa Bay Water has yet to "accept" the plant from Covanta and thus far, the district's money for the plant resides in a trust fund to be used when final acceptance is granted. According to Farrell, one outstanding question is "How will the changes, corrections, and modifications affect the final cost of water?"

Water costs

The water purchase agreement between Tampa Bay Water and Poseidon Resources included a guaranteed water price, based on certain assumptions made at the time, but the water purchase agreement no longer applies since the government acquired the facility.

According to Michele Robinson, spokesperson for Tampa Bay Water, the costs of seawater desalination in the first year is US$ 2.02 per thousand gallons with the average cost over thirty years pegged at US$ 2.49 per thousand gallons. So many changes have occurred in the structure of the financing and ownership that the final price is difficult to determine. Further-more, the expenditures cannot be fully calculated until the plant is online and accepted.

Despite the cost of production, one unanticipated consequence of the district's financial contribution is a reduction in the price of water. Based on current figures, Robinson reports that the cost of water will be US$ 1.88 per thousand gallons over 30 years.

Water Resource Associates developed a Reverse Osmosis Planning Model© to determine a range of cost for seawater desalination based on a number of parameters. Farrell pointed out that the planning model skews a bit high and is based on assumptions. The company has used the model to assist regions around the state in considering the construction of new desalination plants. "The one thing that cannot be considered in our model is competition. Bringing in the private sector has a positive effect on the bottom line, reducing costs and enhancing efficiencies," he explained.

Tampa Bay Water benefited from the efficiencies of the private sector before their early acquisition of the plant, then benefited further from a partnership with the district, reducing the cost of water even more. Farrell explained that "the costs were clearly spelled out in the Water Purchase Agreement, and that every component was documented and analysed." The true cost for this plant can't be known right now, and may not be known for some time. "It's all about operations and maintenance. What's that? Power and membranes. Changing the pretreatment process will add costs at the end of the day," he added.

Still, he's as comfortable with the notion that desalination works for Tampa Bay as he was when he conducted the feasibility research in the mid-1990s. "There's nothing here that can't be fixed," said Farrell. "The question is "How long and how much?"

On 30 October Covanta Tampa Construction, the builder of the Tampa Bay Desalination Plant, filed for bankruptcy – a move that prevents Tampa Bay Water from handing over operations of its US$ 108-million desalination plant on 17 November. This legal move marks the third time that a contractor associated with the project declared bankruptcy, following Stone & Webster in 2000 and Covanta Energy in 2001.

Covanta is under pressure to pass a performance test by 17 November or risk losing its contract with Tampa Bay Water. In late October, the utility was reportedly seeking qualifications of other companies to finish the project and operate the facility.

The facility failed a two-week performance test last May due to membrane clogging problems, which have yet to be resolved. Covanta claims it was prevented from meeting the second deadline, 30 September, because the Tampa Bay Water failed to obtain a special county permit required to transport a membrane cleaning solution to a treatment plant, but the utility claims that it was Covanta's responsibility to meet permit requirements. Consequently, Tampa Bay Water declared that Covanta defaulted on its contractual promise to solve membrane problems at the plant and gave it a final deadline. Clearly, this partnership is not a success story so far!

The desalination plant near Apollo Beach provides something no other source of water can-it's drought proof! Rain or shine that plant eventually will provide the Tampa Bay region with 25 to 35 million gallons of high quality water each day.

Yes, it's having start-up problems - - - primarily in water filtering - - - but this was anticipated by experienced professionals. So, as we consider our next move, and our next desalination plant, it's important for us to understand how we got here, as we rethink our strategy for using desalination plants to increase public water supply.

As a Hillsborough County Commissioner, I served on Tampa Bay Water's Board where decisions were made to develop the project. Given the nature of the project and its US$ 110 million price tag, it was smart to leverage our limited public funds and let the private sector compete to build and operate it. The Board agreed. Let the private sector take the risk, let them invest, and let them have an incentive to do it right —- the first time. And for that risk, we guaranteed them a long-term, fair rate of return.

We were proud of our "smart government" approach, choosing the DBOOT model over the traditional "DBO" (design, build, and operate) model, where government takes all of the risk. At that time, Tampa Bay Water was convinced the DBOOT process would provide the best plant, with minimum risk, at the lowest price.

When the call for projects went out, multi-billion dollar, multi-national corporations competed to win the contract.

From the start, there were those who said the desalination plant wouldn't work; it would harm the bay or would be more costly than projected. But after thorough due diligence, the state of Florida approved the permit application, and it even prevailed in a court challenge. The application withstood environmental scrutiny and included extensive safeguards for the public, at little risk to Tampa Bay Water. The water purchase agreement guaranteed our water costs for the next 30 years. Equally important, the private sector assumed the risk of permitting and developing the project, and financially backed it.

As events unfolded, Stone and Webster went bankrupt, but that didn't affect Tampa Bay Water because the contract was with Poseidon. They had to deliver or we wouldn't pay. Poseidon replaced Stone and Webster with Ogden Energy, a company that was doing very well. Despite these challenges, the project stayed on time and on budget. Ogden Energy changed its name to Covanta Tampa, the project moved forward and construction began.

In December 2001, Covanta's contract required it to post a second performance bond to guarantee the plant's success. Following that, Poseidon and Tampa Bay Water could bond the project. But Covanta had problems. A series of unanticipated events- the energy crisis and September 11th among them-found the company in trouble and our nation's economy deeper in recession. By February 2002, Poseidon completed arrangements for another financing package, so the plant could go forward with bonding. However, by spring, the Tampa Bay Water staff decided that the greatest risk in the project was permitting, and with that completed, the best cost-saving move was to buy out Poseidon. Tampa Bay Water's management stated that it could deliver water at a rate of US$ 1.43 per thousand gallons compared to Poseidon's rate of US$ 1.71. The Board faced this dilemma with great uncertainty on one hand, and potential financial savings on the other. With limited time to act, the Board reluctantly agreed to the realignment, but kept Covanta as the contractor.

Earlier this year, Tampa Bay Water made great claims of success, but we now know that the plant has not operated as planned, that performance tests have been plagued with problems still unresolved and water costs are US$ 2.02 per thousand gallons! You can do the math. Now the news is dominated by the contest between Covanta and Tampa Bay Water, each finger-pointing at the other. Are lawsuits next? I expect this will continue until the plant is operational.

Chris Hart is now the president of Coastal Water Resources, LLC.