Desal Plant Litigation Resolved Through Settlement

CLEARWATER – Tampa Bay Water’s Board of Directors today approved an agreement that settles all outstanding litigation surrounding the failed 2003 design and start up of the Tampa Bay Seawater Desalination Plant.

Under the agreement, Indian Harbor Insurance Company, the owner-controlled insurance carrier, will pay Tampa Bay Water $7.9 million under an insurance policy obtained for the project.  In return, Tampa Bay Water will drop with prejudice all claims against those insured by Indian Harbor:  Hydranautics, Inc., the membrane manufacturer that guaranteed the plant’s performance; Hydranautics co-sureties, Fidelity and Deposit Company of Maryland and Zurich American Insurance; Delaware Engineering, P.C.; and James Suozzo, P.E.

“After many months of negotiations, we have a settlement that we believe is in the best interest of the public.  It puts money in our hands, stops our legal expenses, puts this unfinished business behind us, so we can focus our full attention on completion and operation of the plant,” said Pinellas County Commissioner Susan Latvala, chairman of Tampa Bay Water’s board of directors.  “The money recovered will directly offset debt on the plant and thereby benefit rate payers.  The cost of the original plant, the remediation and the litigation are in our current rates. Future rates will be less with this settlement.”

The $7.9 million settlement is being paid out of a $15 million liability insurance policy on which Tampa Bay Water is an additional insured.

The agreement also requires litigation against King Engineering and employees of King Engineering to be dropped, although they are not a party to the settlement agreement.

“This Board has made many difficult decisions related to this project, but each step of the way, we’ve kept the public’s interest as our primary goal,” continued Latvala.  “From taking the step to build the nation’s first large-scale desal plant to purchasing the plant from the private developer, we have maintained focus on meeting our contractual obligations to supply water and reduce our groundwater production.”

The initial cost to build the reverse osmosis plant and a nearly 15-mile pipeline was approximately $110 million.  However, the plant required a significant overhaul, which brought the total capital cost of the project to approximately $158 million, including membrane replacement.  That capital cost will be offset now by the anticipated payment of $85 million from a SWFWMD grant and the settlement of $7.9 million.

Located next to Tampa Electric’s Big Bend Power Plant, the Tampa Bay Seawater Desalination Plant was originally designed and owned by a private consortium that included Stone & Webster Engineering and Poseidon Resources.  After Stone & Webster filed for bankruptcy in 2000, Poseidon hired Ogden, later renamed Covanta, to construct the plant.

In 2002, with construction nearly a third complete and the Tampa Bay region in the grip of a 100-year drought, the Poseidon/Covanta team was unable to secure cost-effective long-term financing for the project. Tampa Bay Water’s board of directors voted to buy out Poseidon and retain Covanta in an effort to bring this drought-proof supply on line and enable the regional water supply wholesaler to meet its groundwater pumping reduction commitment.

Construction was completed and the plant began producing drinking water from seawater in March 2003.   However, deficiencies throughout the plant caused the filters to clog too quickly and Covanta was unable to meet contractual requirements for water quantity, water quality and efficiency. After several failed acceptance tests, Covanta Tampa Bay filed for bankruptcy to avoid being terminated by Tampa Bay Water.

Tampa Bay Water settled with Covanta in order to gain control of the desal plant.  In November 2004, Tampa Bay Water’s board selected American Water-Pridesa for remediation and long-term operation of the facility.  The plant was shut down in June 2005; American Water-Pridesa is currently producing water from the facility and is scheduled to complete remediation of the plant and run a required acceptance test in Spring 2007.

Tampa Bay Water is Florida’s largest wholesale water provider.  The agency provides wholesale drinking water to its member governments of Hillsborough, Pasco and Pinellas counties and the cities of New Port Richey, St. Petersburg and Tampa.