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Camden Concession to US Water

The state-appointed financial review board approved a $20 million concession fee to repair the city's dilapidated water infrastructure yesterday. The contract with U.S. Water is scheduled to be implemented at the end of this month. "We want to get going here improving the infrastructure," said Stephen R. Sasala 2d, acting chairman of the board, after the meeting.  The $20 million will be financed at a 7.15 percent interest rate, or $1.89 million a year, according to Richard W. Splete, senior vice president and chief financial officer for U.S. Water. Sasala said that in the public market the city may be able to float bonds for less than 5 percent. If the city can float such a bond issue, U.S. Water would be prepaid with the money from the loan, and the rest of the $20 million in infrastructure repairs could be made at the lower interest rate." We were looking for the best deal for the city's ratepayers," Sasala said. 

The City of Camden, N.J., got signatures from Bechtel Enterprises and United Utilities as joint guarantors of the city’s $212-million, 20-year service agreement with U.S. Water LLC for private management of the city’s 12-mgd water treatment plant and sewer system, including billing and collections.

Under the proposed qualified management contract, the blighted city of 87,000 would be paid about $22 million up front and $500,000 annually after the first year (and escalated at 3% a year) for use of its assets. The first-year fee of $8.5 million would be about $2 million less than the current operating budget for the water and sewer utilities, according to the city’s advisors.

Chicago-based U.S. Water is a 50-50 partnership of Bechtel and United Utilities, formerly North West Water, one of seven, privatized water companies in the U.K.

In Camden, all state-mandated approvals are in hand and a fiscal oversight board for the city is expected to rule on Jan. 15 whether or not a $20-million concession fee to be paid by U.S. Water is prudent. The first-year service fee includes $1.9 million in debt service for the concession payment. The city has said it will sign the contract with or without the payment.

In addition to the parent guarantees, the city required U.S. Water to post an $8.5-million letter of credit to cover its transition costs in case of default. The company also agreed to pay $1.2 million at signing for an employee transition fund, to be managed by the city. Finally, the contract includes reimbursement for the city’s expenses during the 20-month procurement, expected to be about $700,000.

Only layoffs for cause are permitted during the term of the contract. U.S. Water will recognize the local AFSCME council as the bargaining unit for all transferred workers after the changeover, to be managed by the city.

For its part, Camden commits to fund at least $40 million in capital improvements to its utility systems over 20 years. The service fee includes $1 million a year for major maintenance and repair of surface facilities and $500,000 a year for underground works. U.S. Water takes all risk of overruns on surface facilities and the city agreed to fund any extra costs for fixing pipes and pumps.

The basic service agreement was negotiated in five days and first announced on July 29 by Mayor Milton Milan (PWF 8-8/98 p. 11). The City Council approved the contract over employee protests and despite news articles alleging conflicts of interest by the city’s legal advisor, DeCotiis, Fitzpatrick & Gluck, Newark. Financial advisor is Commerce Capital of Cherry Hill, N.J. Judy Vereen is directing the negotiations for U.S. Water.

DeCotiis is also advising the Camden County Municipal Utility Authority in its sole source negotiations with U.S. Water on a 20-year service agreement for managing its 80-mgd wastewater system, including solids disposal. Those talks were stalled for the past four months while the City of Camden sought approvals from the state’s Local Finance Board, Board of Public Utilities and Dept. of Environmental Protection. Observers expect the utility authority to conclude its negotiations soon after the city signs its contract with U.S. Water.