Atlanta, water firm split

Pact dissolved after four contentious years

The Atlanta Journal-Constitution

The city of Atlanta and its private water provider parted ways Friday, leaving the city government with the monumental challenge of getting in position to run the beleaguered system after four years of private operation.

City officials expect to have full control of the water system by mid-June.

Tasks ahead include rehiring hundreds of rank-and-file employees and managers, assessing the condition of water plants and mains, and taking over billing and collections.

"There's an awfully lot that has to happen in a short time frame," said City Councilman Howard Shook, vice chairman of the city's utilities committee. "Water is not just another city service. Can you expect a seamless transition of something this huge in such a short time frame? I'm terrified."

Mayor Shirley Franklin and her staff moved quickly Friday to assure residents they can handle the challenge after the joint agreement to dissolve a 20-year contract with United Water Services Unlimited Atlanta.

"I am absolutely confident the city can and will run an efficient water system that will provide high-quality, dependable drinking water for all of its customers," Franklin declared.

She announced that the 346-person water department will be run by Director Chris New, a city employee who had been overseeing United Water's operations.

Jack Ravan, the commissioner of watershed management, who recommended that the contract be terminated, will provide direction and guidance for the department.

The agreement to terminate the $21.4 million-a-year contract comes after four tumultuous years in Atlanta for United Water. The contract was the largest of its kind in America when it was signed. The failure is rare in the industry. Nationally, only about 6 percent of the privatization deals brokered in the past 20 years have reverted to public operation.

Friday's settlement nets Atlanta $5 million and resolves all claims each party had against the other. City officials had claimed United Water owed the city more than $23 million for fees it had failed to collect. And United Water had wanted to be paid at least $40 million for work it had done beyond the scope of the contract.

In June of last year, after six months as mayor, Franklin cited United Water for failure to live up to its contract with the city. Stung by the new mayor's attack, United Water proceeded to pump more than $15 million into its Atlanta operation to improve service. "We made an enormous investment in time, effort, resources and management talent," said Michael Chesser, United Water's chief executive. "We really achieved a lot in a very short period of time."

Making the deal with the city work would have required a "major overhaul" of the contract, Chesser said. The company rang up losses of more than $10 million a year while saving the city a similar amount, he said.

United Water offered to rework the deal, but Franklin's team rejected the proposal. City Hall gave its water company a choice: Walk away or be fired.

Still, both sides said Friday they were parting on good terms. Chesser promised United Water would do everything it could to make the transition back to public operation work.

"We wish the city the best of luck," he said. "They have our 100 percent support."

Ravan, a former administrator of the federal Environmental Protection Agency, has drawn up a detailed business plan that sets up how the city will run the new water department.

"Will there be problems? Sure," Ravan said. "Is this a huge task? Certainly. But our customers should remember that we ran this system for 100 years. We did an excellent job. We are going to take ownership. We are competent. We are dedicated."

Atlanta had won water quality awards in the past, but the city got out of the water business in 1999 because the system was in a shambles. City officials hoped to save enough money from privatization to limit rate increases needed for long-deferred investment in new pipes and other equipment.

United Water has said the city's failure to invest in the system had caused water main breaks and meter repairs to skyrocket under the private company's watch.

A transition plan is due next Friday. Ravan said the city could expect at least $8 million in transition costs and would need to pump $800 million into pipe replacement.

A rate increase may be needed, Ravan said. While sewer rates have tripled over the past 10 years, water rates for Atlanta residents have inched up about 10 percent.

The city also is dealing with a $3 billion sewer improvement plan that may drive up sewer rates dramatically over the next decade.

"Public health drives this decision," Ravan said of the water deal. "I consider this a responsibility of the city to provide safe, potable water at the best price."

Council President Cathy Woolard said the council would get to work quickly on the creation of the department and dissolution of the privatization contract. Considering the complaints about United Water, she said, City Council members should be quick to support Franklin.

"This is the right decision," Woolard said. "There has been a high level of frustration with the service levels."

A major issue for City Council will be what happens with employees. City water department administrators will have to decide which workers they want to keep. United Water may fight to retain some of the same employees.

United Water took over operation of the system in 1999 with 430 employees, all but 11 of them former city workers. Today the company has 300 workers, with 216 of them former city employees.

Ravan's initial plan for the water department calls for 46 more workers than United Water employed.

OpEd from Reason Institute