WIC, EPA Work to Establish Privatization Guidance

The Water Industry Council is working with the Environmental Protection Agency to establish clear guidance on the privatization of wastewater treatment plants constructed with federal monies. Included is whether EPA should have jurisdiction over contract operation agreements that involve concession fees.

Earlier this year the EPA released a draft of its "Guidance on the Privatization of Federally Funded Wastewater Treatment Facilities." The guidance provides information about various forms of privatization and how each is affected by federal law and various funding issues.

The Water Industry Council (WIC) expressed concern that wording in some sections of the draft guidance could have a chilling effect on privatization efforts. Its biggest concern was over the introduction of what it termed a fourth category for public/private partnerships.

"The fees are a way for local governments to capture the savings privatization provides up front, but there is no real difference between agreements that include such fees and those that don’t."

According to the WIC, typical privatization projects have been categorized in three forms: a facility sold to a private party: a facility leased to a private party; or a private party contracted to operate a facility. In its draft guidance, the EPA created another method called "lease-type arrangements" that would fall under EPA jurisdiction. Contract operation agreements that provide for up-front concession fees are included in the definition of such arrangements.

EPA’s draft guidelines were intended to make the agency’s procedures consistent with the requirements of Executive Order 12803, which dealt with environmental facility privatization. The Executive Order, issued in April 1992, gives the EPA the right to review and approve sale and lease arrangements, but did not give EPA authority over contract operation agreements, the Council contends.

"Concession fees grant municipalities access to funds for infrastructure investments and public projects," said Lawrence Chertoff, Executive Director of the Water Industry Council. "The fees are a way for local governments to capture the savings privatization provides up front, but there is no real difference between agreements that include such fees and those that don’t."

Providing a concession fee as part of a privatization agreement doesn’t give a private operator any ownership rights to the facility or property on which it is located, Chertoff said.

The Water Industry Council is also concerned about the open ended review process outlined in the draft guidance. The guidance details the type of information municipalities must submit to the agency for review of sales, leases and "lease-type arrangements," but does not discuss what EPA plans to do with the information, how long the review and approval processes will take or what criteria the agency will apply in making determinations.

The Council’s goal is to persuade EPA that the agency’s legal position is incorrect with respect to "lease-type arrangements" and urge the agency to be more specific about how it will evaluate and approve privatization proposals.

WIC members met recently with EPA and agreed to help rewrite the draft guidance. They will work with representatives of the National Association of Water Companies, National Council of Public and Private Partnerships and the U.S. Conference of Mayors Water Industry Council.

The group will re-draft the guidance document and send it to EPA for consideration. If their revised draft is deemed compatible with the needs of EPA and municipalities, the Agency will make its own corrections then rewrite the document again.

The entire procedure of correcting, approving and re-drafting is expected to be completed by the end of the year.

WIC and other groups hope the new guidelines will cut down on the amount of paperwork involved in a privatization project and help minimize the work and time it takes to approve a contract. It will let decision-makers know in advance what is involved in specific agreements, such as the type of paperwork required. the projected pay rates, the possibility of encumbrance or recourse, etc.