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Privatizing wastewater treatment plant plan flawed

November 10, 2004

MARK LUBOLD

It has always been my intention as a City Councilor to move forward with privatizing the wastewater treatment plant (WWTP) as long as the rate-payers would benefit from the move.

But after analyzing the data, observing city-hired consultant presentations and learning the proposed 20-year contract could cost rate-payers $5 million to $7 million if the agreement does not work out, I am skeptical.

I believe one cannot come to a favorable conclusion about the project because of the inherent flaws in the methodology used to sell the project to Holyoke.

The consultants calculated Holyoke's baseline financial numbers using the EPA's 1973 guide ("Estimating Staffing for Municipal Wastewater Treatment Facilities") and comparing that number with Holyoke's historic costs.

However, I believe historic costs are not a true representation of future costs because they are based on the present-day WWTP, which is over 20 years old.

When the city, as previously determined, makes improvements to the WWTP, it will be possible to implement operational improvements that will reduce costs. For example, new high-efficiency equipment could be installed to lower energy costs and automate processes that would reduce labor costs.

At a recent presentation, the consultants indicated that the baseline analysis was based on 33 city employees. Later, they indicated there are not 33 WWTP employees at the present time, so why use that number for the analysis?

I still have not received an answer as to how many employees currently work at the WWTP or how many would be required when operational improvements are made to the facility. The number of employees is important, because minor reductions to the work force dramatically change the analysis.

To move forward and sign a contract with Aquarion Water Services, the only bidder, the project should realize at least a 5 percent savings, the consultants said. The Aquarion contract, the consultants concluded, would save the city 6.16 percent of projected costs, 1.16 percent over the 5-percent minimum.

If the city can operate an improved WWTP with fewer employees, however, the projected savings evaporate quickly.

Using the consultants' figures, Aquarion's savings would drop to 4.88 percent if the city's model utilizes two fewer employees. That recalculation would also drop Aquarion's plan below the 5-percent savings threshold the consultants cite as the "proceed - not proceed" figure. The numbers fall further if you account for additional savings.

Comments made at the public presentation might lead one to believe that Holyoke is not capable of implementing creative measures to reduce costs simply because they are a governmental body, and governments are not creative.

I disagree.

Over the last four years, the mayor and the City Council have worked together to reduce government costs through reorganization, consolidation and technology. Several city departments with similar functions have been combined and savings have been realized.

To the best of my knowledge, Aquarion has not operated a comparable WWTP for a substantial amount of time. I believe this is important, because there is no performance history over five, 10 or 20 years to examine.

It is also crucial to understand that the city will not be able to terminate the contract for at least five years, even if things are going poorly. Furthermore, at the five-year mark, the city would have to pay Aquarion $5 million to $7 million just to end the contract.

If such a payout becomes a reality, the city will be forced to borrow the money. And since no one can predict the bond rate in five years, it is conceivable that rate-payers could suffer more increased costs, or that Holyoke could be saddled with a contract that is too costly to terminate. The risk does not seem to outweigh the purported benefits.

I believe that, if the City of Holyoke builds a new combined sewer overflow facility and makes improvements to the WWTP facility, operations and maintenance costs are sure to be less than for a 20-plus-year-old facility, without having to privatize. (Mark A. Lubold is Ward 6 City Councilor in Holyoke.)