Water Industry News
struggle to understand virtues of private participation in
wastewater treatment faculties
The decision that Lee voters face as they
consider partially privatizing waste-water operations is a
familiar one around the country. Faced with flat revenues and
rising costs, towns and cities face expensive, technically
daunting upgrades to aging water infrastructure, with little
prospect for state or federal help.
In such circumstances, it is inevitable that
communities would listen closely to the companies that come along
with promises of worry-free, multimillion-dollar savings through
But the process of bringing free market
principles to municipal policy is not always smooth or pretty.
It can be traumatic and divisive, as seen last
year in North County when bids for private operations failed after
Williamstown and North Adams -- which jointly operate the Hoosac
Water Quality District -- clashed over the wisdom of the idea.
North Adams Mayor John Barrett III said last
week that he still believes contracting would save the communities
money and make the plant more accountable. He said he is
considering filing a lawsuit as early as next year to appeal the
district board's even makeup, with two commissioners from each
Williamstown officials still disagree.
"Privatization of any municipal service, whether it be water
or sewer or snowplowing, is worth investigating if the quality of
service can be improved or the cost can be lowered," Town
Manager Peter Fohlin said. "But I don't see that as being the
case at the present time in Williams-town."
The water and waste-water contracting industry
is dominated by a handful of multinational corporations that
operate in a fiercely competitive, narrow-margin market that lives
and dies by winning and keeping government contracts. These
include Veolia Water, which in February changed its name from
USFilter Operating Services and which is the sole bidder in Lee.
The companies aggressively lobby government
officials and rely on complicated bidding procedures to secure
contracts. They also face a variety of criticism from
privatization opponents who insist that the contracts remove a
public service from public control and who accuse companies of
cutting corners to improve the corporate bottom line.
$200 billion price tag
The debate playing out in Berkshire County
reflects a larger problem: the need to repair and upgrade the
nation's aging water and waste-water systems, and the difficulty
that state and federal governments will have paying for it.
According to Environmental Protection Agency estimates from the
late 1990s, it will cost at least $200 billion over 20 years to
bring the nation's waste-water systems up to Clean Water Act
standards. The nation's water systems will cost at least another
Richard Norment, executive director of the
National Council for Public-Private Partnerships, an advocacy
group whose members include Veolia Water, said there is a key
difference between partnerships and "privatization,"
which would amount to a community completely relinquishing its
assets and operations.
He said these partnerships have long been part
of American economic development -- he cited the Erie Canal and
the transcontinental railroad as prime examples -- but the idea
has gained in popularity in the past 20 years.
"The problem that has occurred is that
expanding population, economic development, simultaneously with
tighter environmental controls, have all put enormous pressure on
communities," Norment said. The group estimates that between
30 percent and 40 percent of water and waste-water systems now
include some sort of private management.
To obtain those contracts, the industry
aggressively courts government officials at many levels. For
example, in 1995, the U.S. Conference of Mayors formed the Urban
Water Council, a task force of mayors to address the crisis in
water and waste-water infrastructure.
The council includes an advisory group called
the Water Develop-ment Advisory Board, which is made up of private
operators and engineering firms. Its mission is to provide
"expert advice and information on water issues to [council]
members in order to help the [conference] develop public policy
initiatives designed to assist cities in providing and protecting
urban water resources."
Problems in Lynn
The procurement process itself often raises some
concerns, as shown when the city of Lynn sought two complex
contracts beginning in 1997. One was to build a new combined sewer
overflow project, the other for a 20-year operating contract for
the city's waste-water treatment plant. As
"design-build-operate" contracts, they required special
legislative approval to avoid state procurement laws.
The current process in Lee required similar
legislative approval, obtained last October, to proceed with a
20-year design-build-operate process.
In June 2001, the state inspector general's
office issued a report criticizing the Lynn process. It claimed
that the bidding process -- both contracts were won by USFilter --
did not generate meaningful competition, and that for the sewer
project, the costs were nearly double what they should have been
in a regular, competitive bidding process.
"Other communities considering long-term
DBO contracting for their waste-water facilities should be aware
that the high cost to private firms of developing proposals for
these risky and complex contracts may deter competition and result
in higher costs than competitively bid construction contracts and
straightforward operation and maintenance contracts,"
then-Inspector General Robert Cerasoli wrote in the report.
But even relatively straightforward processes
reveal problems. The procurement process in North County exposed a
number of fault lines, with North Adams and Williamstown officials
divided over the value of proceeding with negotiations.
Barrett said he first began to consider
privatization in 1999 while talking with then Williamstown Town
Manager Stephen Patch. Barrett said it was a way to keep the costs
at the plant down and to cure the chronic mismanagement that had
plagued the plant.
For years, the district's budgets had been an
annual battle royal, setting the communities against one another
and, occasionally, together against the district. And a series of
environmental violations eventually led to the imposition of a
federal EPA consent decree last fall.
Barrett explained that he was inspired by the
good experience he had had with the partnership to run the city's
water filtration plant. For the past 11 years, the plant has been
run by United Water, a subsidiary of the French multinational
Suez. The mayor said that United Water had no problems and had
kept costs down.
In March 2003, HWQD issued a request for
proposals with an ambitious time line of getting bids and signing
over plant operations by July 1. The RFP came out during another
one of the district's acrimonious budget battles.
The district received only two bids: One from
USFilter, now Veolia, and one from Aquarion, a subsidiary of the
British multinational Kelda Group.
But the cost figures were disappointing.
Aquarion said it could run the plant in its first year for
$988,704, and USFilter promised $1,035,501. Plant managers
predicted they could continue to run the plant on their own for
And of note in hindsight, USFilter's proposal
reveals that New York/New England area manager Michael Sause would
"provide oversight and support for the dedicated [operation
and maintenance] team that will be responsible for the day-to-day
operation and management of the district's waste-water
Sause was indicted last August and is awaiting
trial in Brockton Superior Court for allegedly conspiring with a
Rockland sewer commissioner to embezzle more than $366,000 from
the town between 1999 and 2002. A forensic audit also determined
that the two rigged the Rockland RFP, and the town terminated the
contract in March.
In November, HWQD commissioners split along town
lines over whether to proceed with negotiations. The motion failed
on a tie vote.
In the course of the evaluations, Williamstown
officials raised many concerns. Town Department of Public Works
Director Tim Kaiser, who served on the proposal evaluation
committee, explained his concerns for town officials.
Kaiser said that the cost benefits were
nonexistent, and that any future cost benefits would be profits
for the company, rather than savings for ratepayers. He noted
that, because the district would still be responsible for the
capital budget, "an unscrupulous contractor might be tempted
to under maintain a capital asset to save money, only to have it
fail and be replaced with a new, more efficient and less
maintenance-intensive unit at district expense, resulting in
further savings for the contractor."
Kaiser also said that the liability for permit
violations would apply only "under circumstances within their
control, but not if the failure to comply was beyond their control
[high flows, abnormal loadings, etc.]."
There was also the matter of how the contractor
could force renegotiations during any changes in flow levels or
permit limits. "Once a long-term contract has been executed
and district employees become contractor employees, the district
will be in an extremely weak bargaining position," he wrote.
Finally, he noted that plant chief operator
Ridelto "Rusty" Nodal had implemented a list of improvements
that had cut costs and eliminated permit violations. "When
asked specifically what steps a contract operator would take to
achieve these goals, neither proposer offered a solution that the
existing staff hadn't already implemented."
In an interview last week, Barrett said that the
contracts would have protected the district from liability and
would have resulted in better management.
"You don't compromise anything," he
said. "You have tighter control because they have accountability.
If they don't meet it, they're out."
He said that the city's experience with United
Water has shown that the city's bargaining position is no weaker.
He said that he broke off negotiations with the company during
discussions about a successor contract, and that the company
eventually came back to the table.
Barrett insists that HWQD continues to be
mismanaged. "I find it very hard when they want us to approve
a budget with merit pay increases and high benefits packages, when
I'm laying people off," he said.