Several Tampa Bay Water officials support finishing the plant on their own. Developers insist they can get the job done.
By JEAN HELLER, Times Staff Writer
© St. Petersburg Times, published March 15, 2002
CLEARWATER -- The region's principal water utility, bedeviled for months by the financial difficulties of a partner in the construction of a desalination plant, is considering buying out the developer and finishing the plant on its own.
It is a move that could potentially save money for water consumers, but it would place the financial risks associated with the project at consumers' doorsteps, too.
Tampa Bay Water board members received a series of recommendations Thursday from general manager Jerry Maxwell for dealing with the problems besetting Covanta Energy, one of two partners in the desalination development company, called Tampa Bay Desal.
Maxwell's preferred solution is to buy out the development company, then take Tampa Bay Water out on its own to get the financing required to finish the $110-million plant, which will produce 25-million gallons of water a day. The plant, in Apollo Beach on the shores of Tampa Bay, is halfway built.
Given Tampa Bay Water's AA bond rating, and given Covanta's current D rating, the savings on interest payments alone could lower the price of desalinated water by 25 cents per thousand gallons, Maxwell said Thursday. That would be a significant savings for consumers.
Tampa Bay Water officials say if Tampa Bay Desal tried to go into the bond market dragging Covanta's D rating with it, they might not even find financing.
"Our lead underwriters told us that Covanta's difficulties severely compromised our ability to market our deal, that people wouldn't even entertain the idea of buying our bonds," said Koni Cassini, chief financial officer of Tampa Bay Water. "The strong credit rating of Tampa Bay Water would allow us to get the bond deal on our own. But to do that, we'd have to own the project."
Poseidon Resources, currently the financial half of the Tampa Bay Desal partnership, disputes Tampa Bay Water's concerns and raises some of its own.
"We were surprised by this and disappointed because we know we can finance it," said Honey Rand, spokeswoman for Poseidon. "We're prepared to move forward. We'd like to finish this job, and we know we could close this deal."
Rand also said that Poseidon officials estimate a buyout could delay completion of the desal plant by three to eight months, something Maxwell disputes.
"If that happened, it would be because Poseidon did something purely punitive," Maxwell said. "It's unthinkable to me that anyone would do something so harmful for no purpose."
Maxwell said the provision for Tampa Bay Water to buy out Tampa Bay Desal is set out clearly in the contract, although it was envisioned that the buyout would come years from now.
Tampa Bay Water board members contacted for reaction to the recommendation were mostly positive about it.
"I'm going to support it," said Pinellas County Commissioner Susan Latvala. "We've been through a nightmare (with Covanta), and this puts us in control."
She was joined by fellow Commissioner Bob Stewart.
"We didn't want to be the owner and operator this soon, that's for sure, and there will be risks," Stewart said. "But I don't see any other solutions."
And Hillsborough County Commissioner Chris Hart said he thought the plan "makes good practical sense."
However, Charlie Miranda, chairman of the Tampa City Council, expressed concerns.
"That would put Tampa Bay Water at enormous risk, in my opinion," Miranda said. "How many desal plants has Tampa Bay water built? None. If Tampa Bay Water has the ability to go out into the bond market and get a better rate, fine. But if we're going to get into construction and operation of something we've never done before, I would have a whole lot of questions."
Tampa Bay Water officials acknowledge that a buyout is not without financial risk, but they say the biggest risks -- the research, proving the science, obtaining permits and contracting for construction -- all are behind them.
The board will decide on the proposal at its meeting Monday.
Maxwell said only Poseidon would leave the project if a buyout occurs, and that would not be an abrupt departure. He said he wants the company to stay long enough to help see the project through to completion.
All other contractors, including Covanta, would stay on the job, too, their contracts simply passing to Tampa Bay Water.
"This is not Tampa Bay Desal's fault in any way," said John Wilcox, outside counsel to Tampa Bay Water. "Covanta's water division, which is doing the work on our project, is performing very well. The company has other, nonperforming assets that are causing the problems.
"It's a convergence of absolutely unforeseeable events, (the terrorist attacks of) Sept. 11, the fallout from the Enron collapse and very jittery markets. It's like The Perfect Storm."