Recent Developments in U.S. Water Privatization

Commentary

Recent Developments in U.S. Water Privatization

Update on water-related PPP contracts, legislation and more

So far, 2014 has been an active year in the marketplace for public-private partnerships (PPPs) in the water and wastewater arena. While recent enactment of the federal Water Resources Reform and Development Act (detailed in this May 2014 article) garnered significant attention for its provisions creating a new federal credit assistance program and new PPP pilot program for water-related projects, there have been several other state and local developments in this space worth highlighting.

  • Report Highlights Extent of Water/Wastewater PPP Market: According to a new report from Bluefield Research, the current private water market serves approximately 15 percent of the U.S. population-or 47.8 million customers-and is poised for growth in coming years to help close an estimated $500 billion infrastructure investment gap in the water sector. The report examines how an increasingly PPP-friendly policy environment and several emerging market trends-including merger and acquisition opportunities and increasing interest in the U.S. market from global players-stand to drive near-term market activity. This WaterWorld.com article includes a report summary, several charts, and a video overview of the findings.
  • Nassau County (NY) Announces 20-Year Wastewater PPP: Late last month, Nassau County Executive Edward Mangano announced a 20-year PPP with United Water for the operation and management of the County’s three wastewater treatment facilities and sewage system that officials expect to save an estimated $233 million over the life of the contract and improve environmental quality. United Water will be paid $57.4 million annually, will adhere to a no-layoffs policy, and will be subject to several layers of county oversight to ensure contract compliance. The county legislature has approved the contract, and it is currently awaiting consideration by the Nassau Interim Finance Authority before execution. More information is available here, here and here.
  • Consideration of Detroit Water PPP on Hold Over Bankruptcy Mediation: Detroit Emergency Manager Kevyn Orr’s office has received several responses to its March 2014 request for information seeking a potential PPP for the operation of the city’s water and wastewater system. However, the decision process appears to have been put on hold pending the resolution of a mediation process ordered by bankruptcy Judge Steven Rhodes, which seeks to force Detroit and three surrounding counties-Wayne, Oakland and Macomb-to come to a resolution on the bankruptcy plan’s proposed spinoff of the system to a regional public authority. Earlier talks on the regional authority between the city and counties stalled amid resistance from the counties, who balked at the financial structure of the plan and raised concerns over rampant account delinquency in the city system, the subject of recent protests over city shutoffs.
  • Pennsylvania Water PPP Legislation Advances in House: In late June, the Pennsylvania House State Government Committee approved a bill sponsored by State Rep. Eli Evankovich-House Bill 2239-to enable local governments to use public-private partnerships to finance, develop and/or operate water, wastewater and stormwater facilities. “Allowing P3s for water and sewage will make more money available for expansion projects and environmental compliance,” Evankovich stated in a press release. “My hope is that we can move this proposal forward to unlock new investment in Pennsylvania.” The bill now moves to the full House for consideration. The full text of HB 2239 is available here.
  • Pittsburgh Water Authority Receives PPP Award: Earlier this month, the National Council for Public-Private Partnerships awarded its 2014 Public-Private Partnership Service Award to the Pittsburgh Water and Sewer Authority and its partner Veolia North America for their one-year private management consulting agreement that identified $2.5 million in new revenue, $3 million in annual operating savings and an additional $2 million in savings from speeding the rate of debt refinancing. In the agreement, the Authority brought in Veolia to serve as a short-term interim manager and implement its Peer Performance Solutions model, designed to improve executive management and perform a multi-faceted diagnostic evaluation of 10 operational areas. In addition to the identified cost savings, the partnership was also credited with safety, training, and customer service improvements. More information is available here.
  • DC Water, Washington Aqueduct Launch Management Consulting PPP: In May, the District of Columbia Water and Sewer Authority and Washington Aqueduct officials announced the launch of an 18-month contract similar to the Pittsburgh example above-as well as similar agreements in New York City and Dekalb County, Georgia-that will see Veolia implement its Peer Performance Solutions joint public-private management model in an effort to achieve $12 million in annual savings, as well as process improvements and operational efficiencies. Veolia experts will work alongside Aqueduct managers and staff to develop and implement an asset management strategy and performance management system, identify long-term capital improvement projects, and implement a range of other optimizations. More information is available here.
  • Altoona, PA Officials Considering Water System Lease: As reported in my June newsletter, city officials in Altoona, PA are considering a potential long-term lease of the city’s water and wastewater system, after a consultant report suggested that the city could generate between $180 million to $240 million and allow the city to pay off debt, fully fund all city pension systems, reduce its property tax, and return to fiscal health. A presentation summarizing the recommendations of the Griffin Financial Group is available here.

For more on recent developments in water and wastewater PPPs, see Reason Foundation’s Annual Privatization Report 2014.

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 July 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.