by Dan Soltis

Trade Group Worried by New U.S. EPA Guidance on Privatization

New York—The Water Industry Council (WIC), a trade group of private water and wastewater service providers, warned of a potentially chilling effect of proposed procedures issued by the U.S. Environmental Protection Agency governing the privatization of wastewater facilities by local municipalities.

The Council said local initiatives could be thwarted by these procedures that undermine EPA’s otherwise strong support for privatization.

"Water and wastewater service providers are working hard to provide municipalities with the widest range of options in structuring privatization agreements," said Lawrence Chertoff, executive director of WIG. "EPA is trying to seize authority beyond its jurisdiction. We are concerned that under these new procedures, EPA will intervene after arrangements have been carefully crafted and approved by the local community."

According to WIG, EPA’s recently-issued rules cover an unnecessarily broad range of privatization agreements of publically owned wastewater treatment facilities. The trade group noted that the new rules were issued to make EPA’s procedures consistent with the requirements of Executive Order 12803 concerning environmental facility privatization.

"Imagine a mayor who has gone through the proposal process, evaluated bids, negotiated an agreement, held public hearings and secured the approval of local and state agencies. Then, at the eleventh hour, EPA says it wants to review the project for an undefined period of time, measuring it against undefined parameters," Chertoff said.

Confusion Over Privatization Arrangements

According to the Council, the Guidance Document confuses different types of privatization arrangements. Typically, privatization takes three forms: a facility is sold to a private party, a facility is leased to a private party or a private party is contracted to operate the facility over a multi-year period. The Council said that EPA arbitrarily created a fourth

privatization option called "lease-type arrangements" over which the agency would extend its jurisdiction.

According to EPA, contract operation agreements that provide the concession fees are Included in the latter definition. Authority granted in Executive Order 12803, issued in April of 1992, gives EPA the right to review and approve sale and lease arrangements but does not give EPA authority over contract operation agreements.

"Concession fees give municipalities immediate access to funds for making investments in infrastructure or other public projects," Chertoff said. "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."

Open-Ended Review Raises Concerns

Additionally troubling to the Council, EPA’s document details the kinds of information required to be submitted to the agency for review of sales, leases and lease-type arrangements but includes no explanation of what EPA will do with this information, how long the review and approval process will take or, most importantly, what criteria the agency will apply in making determinations.

"The Water Industry Council’s members are very concerned about subjecting privatization proposals to an open-ended review process, Chertoff said. "Uncertainty will really have a chilling effect on new operating agreements, causing municipalities to miss out on the benefits the private sector can offer."

WIC's goal is to persuade EPA that the agency’s legal position is incorrect with respect to lease-type arrangements and to urge the agency to be more specific about how it will evaluate and approve privatization Proposals

"We are optimistic Chertoff said. "EPA is run by reasonable people, and the Council is making a reasonable argument."