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The Future of Metro Water Services

Privatization of Water and Wastewater Utilities

Prepared by the
Metropolitan Government of Nashville and Davidson County Task Force

September 21, 1998

 

Major Topics

greenball.gif (104 bytes) Problems Facing Municipal Owners
greenball.gif (104 bytes) Solutions Provided by Private Operators
greenball.gif (104 bytes) Forms of Privatization – Examples
greenball.gif (104 bytes) Water Company Revenues
greenball.gif (104 bytes) Employee Concerns
greenball.gif (104 bytes) Decision Making

 

Problems Facing City Owned Utilities

greenball.gif (104 bytes) Excessive Costs to Operate
greenball.gif (104 bytes) Excessive Investments Needed
greenball.gif (104 bytes) High Rates to Users
greenball.gif (104 bytes) Increasingly Stringest
greenball.gif (104 bytes) Lack of In-House Expertise
greenball.gif (104 bytes) Failing Infrastructure
greenball.gif (104 bytes) Keeping/Expanding Specialized Work Force

 

Why Privatize a Public Service

greenball.gif (104 bytes) USEPA Estimates:
– $ 138 billion for water systems
– $ 212 billion for wastewater systems
greenball.gif (104 bytes) Reduce O&M Costs
greenball.gif (104 bytes) Obtain Management Expertise
greenball.gif (104 bytes) Cash and Debt Capacity Needed for Other Public Services

 

Solutions Provided by Private Operators

greenball.gif (104 bytes) World Class Experts in all facets of the water  and wastewater industries
greenball.gif (104 bytes) Access to latest technologies
greenball.gif (104 bytes) Minimize costs of perators through effeciencies  and scale of procurements
greenball.gif (104 bytes) Reduced and Stabilized Rates
greenball.gif (104 bytes) Train and Develop specialized work force

 

greenball.gif (104 bytes) Private operators accept responsibility for regulatory compliance and liability
greenball.gif (104 bytes) Accountability and guarantees
greenball.gif (104 bytes) Defined Quality Standards and conctractural obligations
greenball.gif (104 bytes) Debt Restructuring
greenball.gif (104 bytes) Asset Management

 

Alternative Forms of Ownership and Operations

greenball.gif (104 bytes) Regulated Public Utilities
greenball.gif (104 bytes) Long-Term Concessions & Leases
greenball.gif (104 bytes) Contract Operations
– Design, Build and Operate (DBO)
– Build, Own, Operate and Transfer (BOOT)
– Operation and Maintenance

 

Examples of Recent Projects

greenball.gif (104 bytes) Buffalo, New York
– City retains ownership
– $4.6 million annual savings to City
– Stable rates
– $15 million per yer capital investment
greenball.gif (104 bytes) Seattle, Washington
– Tolt River Water Filtration Plan
– 120 MGD direct filtration facility
– 25-year Agreement
– $70 million savings to City
greenball.gif (104 bytes) Atlanta, Georgia
– Bid Contract Operations
– Reduced budget from $49.5 million to $21.8 million
– No staff reductions for 3 years

 

Regulated Public Utility

greenball.gif (104 bytes) Private investment used to meet an essential public need
greenball.gif (104 bytes) Regulated enterprise
– Tennessee Regulatory Authority
– Tennessee Department of Environment and Conservation
greenball.gif (104 bytes) Owner/Operator approach to captial planning
greenball.gif (104 bytes) Eliminate inter-governmental friction over
water and wastewater issues
greenball.gif (104 bytes) Property and franchise taxes benefit local community
greenball.gif (104 bytes) Utility assumes all liability and compliance risks

 

Management Service Agreements

greenball.gif (104 bytes) Allows City to keep its assets and staff
greenball.gif (104 bytes) Operator provides a management staff and specialized experts as needed
greenball.gif (104 bytes) Fixed fee arrangement similar to hiring a Consultant

 

Contract Operations

greenball.gif (104 bytes) City maintains ownership
greenball.gif (104 bytes) Can be structured to protect employee positions, salaries and benefits
greenball.gif (104 bytes) Guaranteed Savings to City
greenball.gif (104 bytes) Shifts compliance standards to Operator
greenball.gif (104 bytes) Operator is accountable for all services, quality and performance

 

Long Term Concessions

greenball.gif (104 bytes) Inlcudes O&M of distribution and collection systems and treatment facilities
greenball.gif (104 bytes) Billing and Collection
greenball.gif (104 bytes) Capital Improvement Program
greenball.gif (104 bytes) Up-front concession funds
greenball.gif (104 bytes) Guranteed costs and savings to City

 

Industry History

greenball.gif (104 bytes) Private ownership of water utilities dates to 1860's
greenball.gif (104 bytes) Contract Operations are at least 50 years old
greenball.gif (104 bytes) There are approximately 1,000 US water utilities
greenball.gif (104 bytes) At least 31% of major US cities are considering some form of public-private partnering

Financial Depth of Operators

greenball.gif (104 bytes) Major Private Operators are all traced to large water companies world-wide
greenball.gif (104 bytes) Assets exceeding $10 Billion is common among parent companies
greenball.gif (104 bytes) Revenues are generally near or exceeding $1 Billion annually
greenball.gif (104 bytes) Provides financial stability and guarantee performance

 

IRS Regulations

greenball.gif (104 bytes) Tax Exempt status of municipal bonds snce 1986 Reform Act
greenball.gif (104 bytes) Private Operation of tax exempt assets limited to 20 years
greenball.gif (104 bytes) IRS permits conversion to private activity and retention of tax exempt status if bonds are defeaed to earliest call or final maturity

 

Current Size of Private Water/Wastewater Operations

Int'l Water Company Revenues ... Slooooow download !

 

Domestic Water Company Revenues....Sloooow download.

 

Organization Transition

greenball.gif (104 bytes) Transformed structure strengthens employees' responsibility to quality
greenball.gif (104 bytes) Broadens career opportunities
greenball.gif (104 bytes) Smooth transition plan
greenball.gif (104 bytes) Enhanced training and development
greenball.gif (104 bytes) Empower worker's ability

 

The Decision Making Process

greenball.gif (104 bytes) Must address basic policy questions
greenball.gif (104 bytes) Critical review of the facts
greenball.gif (104 bytes) Thorough assessment of future needs

 

Moving Forward

greenball.gif (104 bytes) Define the roles of government and the private sector
greenball.gif (104 bytes) Develop a request for qualifications
greenball.gif (104 bytes) Issue a request for proposals
greenball.gif (104 bytes) Accept bids and award

 

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