Poseidon Town: Is the OCWD-Poseidon Desal 'Partnership' Binding?
A 2018 term sheet signed by Poseidon Water and the Orange County Water District says it's non-binding, but that doesn't preclude a 'contract implied in fact'
Water management in California is at a tipping point with climate change extremes that are emerging between the lingering water-be-dammed policies of the past and the new local water demand-side policies of this era.
How will we adapt to those climate extremes?
By eschewing the principles of reasonable water use and environmental justice embedded in our State Constitution and laws?
And by mocking the much praised but poorly implemented “one-water” (integrated-portfolio) approach to water management with provincial and corrupted polices?
The proposed $1.4 billion ocean desalination plant for Huntington Beach, a case of political rivalry and corporate greed greenwashed as a climate resiliency policy, is a good lesson on how that scenario is playing out and what it means for our future.
It it’s in that vein that I respond to a venerable opponent of the desalination project who strongly objected after I called the relationship of Poseidon Water (the project developer) to the Orange County Water District (the lead agency) a partnership.
The opponent said that I was “helping Poseidon” and asked me to make a correction.
“Poseidon is selling their product to OCWD. They are NOT partners,” said the opponent.
“Poseidon only has their (2018) draft term sheet with OCWD to show investors that OCWD may buy the water if the board approves—after all permits and the $400 million MET [Metropolitan Water District of Southern California] grant” are approved.
The objection comes from two recent stories that I wrote.
The first was about OCWD’s endorsement of the proposed “More Water Now” ballot initiative, currently in the signature gathering stage for the Nov. 2022 election.
It would cripple environmental laws and result in construction of poorly vetted water projects at taxpayers’ expense.
I wrote that OCWD is “obsessed over creating a public/private business partnership with Poseidon Water” and that the ballot initiative is OCWD’s “opportunity to push their partnership with Poseidon forward.”
I also quoted OCWD’s executive engineer, John Kennedy. “They [Poseidon] are our partners,” he told me in a 2017 interview.
In a story that directly followed, I said that California’s environmental protection laws are weakened by “fluid interpretations, money, and politics.” Using the HB desal project as an example, I described it as “a joint proposal by Poseidon Water and the Orange County Water District.”
My critic correctly states that the term sheet is non-binding.
But the issue isn’t that simple.
In fact, there exists a strong partnership between Poseidon and OCWD. Before describing that partnership further, let’s look at the 2018 term sheet.
The Non-binding Term Sheet
The 2018 term sheet linking Poseidon and OCWD in their mutual pursuit of building a giant ocean desalination plant in Huntington Beach explicitly states that nothing in it is binding.
“The purpose of this Term Sheet,” it says, “is to set forth the preliminary and non-binding terms of subsequent negotiations toward a possible Contract between the parties. The proposed terms and conditions set forth herein represent the current intention of the Parties, do not bind either Party in any manner, do not commit any Party to a particular course of action (e.g., entering into a Water Reliability Agreement), do not limit the Buyer’s discretion under CEQA, and in particular do not commit the Buyer to purchase Product Water.”
If that’s not clear enough, it adds that the term sheet is not “complete” or “definitive” and that the two parties won’t be legally bound until all environmental and permitting requirements have been met, public hearings held, and contract terms have been worked out completely and definitively to the mutual satisfaction of both parties.
And, finally, “Either party is free to terminate negotiations at any time following written notice to the other Party without any liability or obligations to the other Party.”
In sum, the Poseidon ocean desalination project is not fully permitted (next, it’s on the Coastal Commission’s March 17 agenda), the $400 million public subsidy needed for construction has not been granted, and OCWD and Poseidon have NOT signed a final or binding contract to build and operate anything.
Clearly then, OCWD shouldn’t face legal problems on account of the term sheet if it decides to back away from the Poseidon project.
But it’s the non term-sheet partnership between Poseidon and OCWD that is the problem. At the least, it creates an ethical and moral quagmire for its board members and staff; at worst, serious legal problems.
That’s because a non-binding term sheet doesn’t necessarily mean that there isn’t a legally binding contract. Even worse, the conduct of both parties—even without written or spoken words—can become a “contract implied in fact.”
Next: Explaining legal terms, potential legal problems, followed by the overwhelming evidence of an existing Poseidon-OCWD partnership.