Ending a Busy Year in Water/Wastewater Privatization

Commentary

Ending a Busy Year in Water/Wastewater Privatization

San Antonio approves privately-financed pipeline, New Jersey legislation to fast-track asset sales or leases approved, and much more

In what was already a busy year in the water and wastewater public-private partnerships space-see my writeup from the July edition of this newsletter-the last several months on 2014 have brought a number of new and noteworthy developments in this dynamic market sector:

  • San Antonio City Council Approves Major Water Pipeline PPP Contract: In late October, the San Antonio City Council unanimously approved a $3.4 billion, 30-year public-private partnership with the Vista Ridge Consortium-a team led by Abengoa Water USA and Bluewater Systems-that involves the purchase of up to 50,000 acre-feet of water per year from 3,400 landowners in Burleson County that will be conveyed through a new 142-mile pipeline. The private team will finance, design, build, operate and maintain the new pipeline and related wells, pumping stations, tanks and other facilities. The project is designed to increase the city’s water supply by over 16 billion gallons per year-or 20 percent, enough to serve 162,000 households-without impacting the environmentally sensitive Edwards Aquifer supply. “With this agreement we are moving from a city perceived to lack water supplies to a city that will ensure economic prosperity for our children and grandchildren,” San Antonio Water System chairman Berto Guerra said in a press release. The contract and other project information are available here.
  • New Jersey Legislature Passes Bill to Fast-Track Muni Water Privatization: Earlier this month, the New Jersey Assembly and Senate passed the “Water Infrastructure Protection Act” (Assembly Bill 3628), which would allow most municipalities to sell or lease their water or wastewater systems to other private or public entities without a public referendum (as currently required under state law) if an emergent condition exists, such as being located within an area of critical water supply concern, noncompliance with federal water pollution and safe drinking water laws, inadequate system maintenance, or if the current owner lacks the financial ability for the long-term upkeep of the system. In lieu of a public vote on future privatizations, the legislation outlines a series of process steps required in advance of procurement that include various reporting and public hearing requirements. At press time, the bill was awaiting final action by Gov. Chris Christie.
  • Voters Approve Water Privatization in New Jersey, Missouri, Indiana: In the November 2014 election, over 64 percent of voters in Haddonfield Borough, New Jersey approved the $28.5 million sale of the borough’s water and wastewater systems to New Jersey American Water in order to avoid sharp rate increases that would have been needed to modernize the deteriorating systems; some parts of the borough are still served by century-old wooden pipes. Similarly, 70 percent of voters in Arnold, Missouri approved a $13 million sale of its sewer system to Missouri American Water, and voters in Russiaville, Indiana approved a $1.8 million sale of the town’s water system to American Water.Meanwhile, voters in Sussex Borough, New Jersey rejected a sale of their water and wastewater systems on election night, according to NJ.com. And in Reading, Pennsylvania, voters approved a ballot question that would require a public vote prior to any sale or long-term lease of city assets.
  • Middletown, PA Signs Long-Term Concession for Water, Wastewater Systems: Earlier this month, the Borough Authority of Middletown, PA signed a 50-year concession with United Water and KKR for management and operations of the borough’s water and wastewater systems. Under the concession agreement, the United Water/KKR team will make a $43 million upfront payment to the borough, which will be used to pay down debt and unfunded pension liabilities. The joint venture will also finance $83 million in system infrastructure improvements over the life of the concession. The Authority will maintain public ownership of the systems and control over water rates under the contract.
  • Pittsburgh Extends Partnership for Water, Wastewater Management Services: Last month, the Pittsburgh Water & Sewer Authority announced plans for a one-year extension of its contract with Veolia for executive management services. Under the contract-in effect since 2012-Veolia has teamed with the Authority to develop and implement a long-term strategy to improve customer service, lower spending, and increase efficiency and water quality, while maintaining public governance and a public sector workforce. Since the beginning of the contract, the partnership reports several notable outcomes, including $5.5 million annually in recurring revenue and savings through operational efficiencies, improved financial controls, and improved customer service, including a reduction in customer on-hold times of 80 percent. “Our partnership with Veolia has improved the day-to-day operations of the utility, resulting in significant cost efficiencies and improved customer service,” said Authority board chairman Alex Thomson in a press release. “Veolia has provided stable leadership to PWSA and is helping us develop a plan to prepare the utility for the difficult challenges it faces in the future.”
  • Central Arizona Project Announces Recharge Facility PPP: Last month, the Central Arizona Groundwater Replenishment District (CAGRD)-the groundwater replenishment authority of the Central Arizona Project-announced an agreement with Liberty Utilities to build the state’s first-ever reclaimed water recharge facility through a PPP. The project-which will help CAGRD meet its legal groundwater replenishment obligations with a 100 year, renewable water supply-will send reclaimed water from Liberty’s Palm Valley Water Reclamation Plant to a new aquifer recharge facility to be built in Goodyear, where the water will be pumped into large, shallow basins to replenish the local aquifer and help restore water levels that have declined due to past pumping. More information is available here.
  • Fort Wayne, Aqua America Announce Water/Wastewater Agreement: Earlier this month, Aqua America and the City of Fort Wayne, Indiana announced a major deal in which the city will purchase the company’s drinking water system assets in southwest Allen County for $67 million, while entering into an agreement with the firm to treat 1.5 million gallons of city wastewater per day at Aqua America’s Allen County wastewater treatment facilities. The deal resolves several years of litigation between the two parties. More information is available here.

Leonard Gilroy is director of government reform at Reason Foundation and is the editor of the Privatization & Government Reform Newsletter, available here. This article was featured in the December 2014 edition of the newsletter.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.