San Diego business leaders are keeping a sharp eye on the progress of a planned desalination plant in Carlsbad, billed as the largest in the Western Hemisphere and one that could ultimately serve the entire county.

The project, by Stamford, Conn.-based Poseidon Resources Corp., drew a step closer to fruition Sept. 28 when the Carlsbad City Council approved the water purchase agreement for the $270 million plant.

It would be located adjacent to Cabrillo Power's Encina Power Station, the county's largest fossil-fuel electric generating plant, where Poseidon now operates its pilot project.

Fifty million gallons of drinking water per day would be produced and then connected, via a new piping system, to the county's existing drinking water system, enough for about 300,000 people. Carlsbad will get 25 million gallons of that water a day - enough to satisfy its entire daily requirement.

Poseidon also has talked to Oceanside and Vista city officials, and if Poseidon and the San Diego County Water Authority can work out their differences, the plant also could be tapped to serve the county's long-term water needs.

If all goes according to plan, the plant could be operating by 2008, Poseidon executives say. Under the deal, consumers would pay no more than they would for the water they currently get from the Water Authority.

The county has a combination of water sources, but gets about 90 percent of its water from the Colorado River, said Ken Weinberg, the agency's director of water resources.

Desalinated water is more expensive to produce - about $860 per acre-foot, compared with $543 for imported water to the region, Weinberg said. An acre-foot converts to about 325,000 gallons, or enough for a family of four for a year.

Poseidon and its investors understand they will be facing a dry period for profits - at least until imported water gets more expensive than desalinated.

Peter MacLaggan, the company's senior vice president, said he expects that to happen by the end of the decade.

"We are not going to recover all of our revenues we had hoped for. For some period of time, our equity investors will be awaiting a return on their investments until those lines cross," he said. "We are willing to carry that."

Jim Elliott, Carlsbad's administrative services director, figures Carlsbad's seemingly no-risk deal with Poseidon will set the tone for other communities that might want in.

"They're going to look at what Carlsbad did and go to Poseidon and make their best deal," he said. "Our agreement plows this ground."

Dwindling Resources

Ron Parker, director of engineering for the Four Seasons Resort Aviara in Carlsbad, said his hotel uses several millions of gallons of water a year, both fresh and reclaimed.

"If we could reduce our reliance on Colorado River water, which is continuing to dwindle, desalination can help," he said. "It may not be a magic pill or end-all, but it's worth considering. I think it will be a better business atmosphere in Carlsbad to say they have a reliable source of water for those wanting to locate here."

Tim Fennell, the chief executive officer-general manager of the Del Mar Fairgrounds, also is enthusiastic.

"This kind of project is essential for future growth in Southern California," he said. "This water is critical for expanded housing development and businesses. It's great to see Carlsbad taking the lead. I think we have to find alternative sources, and what better way than the ocean?"

Water Weight

For some businesses, the debate over the cost of imported water, vs. desalinated is relative.

"It's not so much the price of water that matters, but reliable sources of water," said Joseph Panetta, the president and CEO of Biocom, an association of San Diego's life sciences industry, which relies heavily on water.

"Even if we have a great deal, we can't ensure that water is going to keep falling out of the sky or that we have a supply that will provide us for the next 25 years. It's important for us to make sure if we're to grow here in San Diego County that we will have a dependable source of water.

"Desalination is one important option that needs to be explored in much greater detail here. I think this plant in Carlsbad could potentially serve to reduce the 90 percent dependency on outside sources of water."

Carlsbad already has a significant cluster of biotechs, since the city has created a biotech-friendly environment, Panetta added.

"It's just one more thing that would make Carlsbad an attractive place to grow and locate."

Weinberg agreed that it's not all about dollars and cents.

"We looked at alternatives, depending on doing desalination or not," he said. "If we don't do it, we have to build additional treatment plants and lay new pipelines to the Metropolitan Water District and buy it from the district.

"It's not a cost decision," Weinberg said. "You get the reliability of having an ocean there all the time. If you rely on imported water to meet future needs, you rely on a supply that is not growing."

County Supervisor Bill Horn, whose 5th District includes much of North County, including Carlsbad, also grows avocados.

"Any water we can get we'd be better off with," Horn said. "The more you produce, the lower the cost will become, like new TVs. I think it will be a good regional asset for everyone. Give 'em God's speed. I hope they can make it work."

Carlsbad's approval was an important first hurdle, but more remain in 2005, including certification of the environmental impact statement, a variety of local permits and - the big one - a permit from the California Coastal Commission.

Poseidon plans to apply for that one, Mac-Laggan said, in June.

"If you were to ask me what keeps me awake at night, it's the California Coastal Commission," he said, noting how tough the commission is when it considers coastal projects.

Relations between Poseidon and the Water Authority have ebbed and flowed over the details of how a regional plant would work.

On Sept. 23, the parties were back at the table. Representatives from Poseidon and Cabrillo were present and agreed to let the Water Authority on the plant's site to help complete its own EIR, said Weinberg.

The agency remains under the gun: It's trying to meet a deadline for the county's projected water needs in 2015, and has been pursuing other options, including facilities at the San Onofre Nuclear Generating Station and in South County.

If the Poseidon project fizzles, the Water Authority would have to meet its needs by building a pipeline to Northern California - a project that would take at least nine years to complete, Weinberg said. So, 2006 has been set as the deadline for determining new sources of water.

"We would dearly love to include the Water Authority in a way that would assure that this plant works, because the region needs the water," Elliott said.

One issue, he said, has been the debate over public vs. private ownership of the facility.

"We have been consistent that we think the way to do the project is through a public-private partnership, and the public should ultimately own and control the resource," Weinberg said. "We can finance it cheaper and we don't operate for a profit. I think that the public is more comfortable with a public agency as a steward of the resource. That's why we believe ultimately that the public should own it, but we need a partner. It should be a win-win for everybody."

Michael Shames, the executive director of the Utility Consumers' Action Network, said private ownership of an essential public commodity, such as water and electricity, is "fraught with the potential for excessive profit-making."

But Panetta said if the city has sufficient control over the facility, the private sector can benefit.

"The biggest advantage the private sector has is the expertise to provide service and do it in a cost efficient way," he said. "There is no need for the government to get involved. The city government should be there to provide services that can't be provided by the private sector."

Elliott said he is confident a compromise can be worked out.

"I understand that the risks for Carlsbad are very different than the risk to the County Water Authority," he said. "If the plant doesn't work, we stay connected to the water pipeline and we still have the same amount of water. But for the Water Authority, if, four years down the road it fails, then the Water Authority is four years behind in developing new water sources. It's important for the Water Authority to join in with us and make sure it works."

Ted Owen, the president and CEO of the Carlsbad Chamber of Commerce, which supports the project, said he's fed up with the interagency strife.

"Desalinated water now is affordable and is good for business," he said. "But we cannot get everyone on the same page at the same time and that is frustrating. The issues out there aren't and never have been partisan. We can't get people to agree. There is so much interagency task force nonsense. They can never agree on anything. It doesn't matter if you're a Republican or a Democrat, we all get thirsty."