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New Jersey allows for full rate recovery of water privatization costs

By Seth Augenstein | NJ Advance Media for NJ.com 
November 06, 2014

Trenton voters were given the opportunity to sell the city’s water system to a private company in 2010. The $80 million sale was defeated in a 4-to-1 landslide.

At Tuesday’s polls, hundreds of voters in tiny Sussex Borough overwhelmingly rejected a similar sale of their public system to private hands, while Haddonfield in Camden County solidly approved selling its deteriorating system to New Jersey American Water.

But such direct public mandate on water and sewer sales may become a thing of the past, as a bill in the Legislatures allowing public entities to fast-track selling water and sewer systems that serve millions advances this fall.

The sponsors of the “Water Infrastructure Protection Act” say it’s a way to get desperately-needed investment into water systems that have been neglected to the breaking point by government owners. The bill’s opponents warn that it’s an attempt to turn private profits of public infrastructure at the expense of taxpayers – who themselves will end up paying for the purchase prices with each flush of the toilet.

“The legislature should reject this transparent attempt by private water companies to fleece ratepayers while cutting the public out of important decisions about the management and ownership of their water resources,” said Jim Walsh, New Jersey Director of Food & Water Watch, a non-profit watchdog which advocates for public health.

“This bill removes important consumer protections by accelerating the sales of publicly owned systems, limiting voters involvement in the process, and forcing the Board to go along with negotiated contracts that could potentially be harmful for ratepayers,” said Stefanie Brand, the director of the state’s Division of Rate Counsel. “We urge that this bill not be voted out of committee.”

Currently, a public entity must put a potential sale directly to the public in the form of a referendum. But the bipartisan bill, sponsored by State Sen. Joe Kyrillos (R-Monmouth) and State Sen. Paul Sarlo (D-Bergen), would put together a new process by which a municipality could seek to designate its system as in disrepair – and get approvals from both the Department of Environmental Protection and the Board of Public Utilities to sell it directly to a private company.

“In its own way, it’s as important as the renewal of the Transportation Trust Fund,” said Kyrillos. “It’s a big deal for the state in terms of environmental problems, and economic growth.”

Any system within a combined-sewer overflow, being within a critical water supply area, having a potential for sodium intrusion, or being deficient in drinkability or pressure could be put up for sale, according to the bill. Kyrillos could not give an estimate of how many systems would fall into the categories, but the overflows alone are present in 21 of the biggest New Jersey cities, and the critical water areas extend in a curving arc through central and southern New Jersey, according to DEP documents.

Critics contend those categories are too broad. And it’s not just environmentalists who oppose the bill. The New Jersey State League of Municipalities has lobbied against the legislation, warning against its possible long-term effects. Bill Dressel, the executive director of the group, contends that that a water system is a local government’s “most valuable asset” – and voters should have the direct say as to whether it is sold.

“It’s at the essence of local government,” Dressel said. “The League is concerned about the authorization of a sale of a water utility asset without voter approval.”

The state’s Division of Rate Counsel, which represents ratepayers across New Jersey, blasted the bill in written testimony as the bill was voted out of the senate budget and appropriations committee in October. The cost of buying the systems will be passed on with increased rates, said Brand, the division’s director.

“This bill … has the potential to allow investor-owned utilities to run wild with bid prices in an effort to submit the highest bid,” said Brand. “Meanwhile, ratepayers will be required to pay for the full purchase price in rate, and will pay for these higher bids.

“If the utility knows in advance that the entire purchase price will be recoverable from ratepayers, it will have no incentive to submit a reasonable bid or negotiate a reasonable purchase price,’’ she added.

The bill could affect a majority of the water systems in New Jersey. Publicly-owned water systems account for 321 of the 593 community water system in the state, said Bob Considine, a spokesman for the state Department of Environmental Protection. The remaining private systems span a range from the massive United Water and New Jersey American Water systems which each serve more than half a million people, down to tiny water systems serving just a few dozen mobile homes.

An Oct. 20 legislative financial analysis of the bill cited that the federal Environmental Protection Agency estimates that New Jersey’s water, wastewater and stormwater infrastructure will need $41 billion investments over the next 20 years.

Kyrillos, the co-sponsor, counters that any sales will not happen “willy nilly” – and many other people in the Garden State already have taps and toilets supplied by private companies.

“Many, many, many people in New Jersey have private water utilities,” the senator said. “And they pay a reasonable price that’s overseen by the BPU.”

Sarlo, the other sponsor of the bill, did not return a call.

Jeff Tittel, the director of the Sierra Club’s New Jersey chapter, said the rejection of privatization efforts in Trenton in 2010 and Newark in 2012 have led to the bill to make it easier to get around public scrutiny.

“Many towns and public utilities want to privatize water and sewer services for short term financial gain which will mean long term problems for their residents,” Tittel said. “This legislation is trying to silence residents since they know the public is against these privatizations because with privatization we see higher costs, worse services, and at times threats to public health and safety.”

Seth Augenstein can be reached at saugenstein@njadvancemedia.com.