Concession Deals

Edison should reject the water & sewer scheme

Junior Romero
Food & Water Watch

March 11, 2019

Edison, New Jersey
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 Overview
• Background
• Major Concerns
– Borrowing trouble
– Loss of public control
– Rate hikes
– Job loss and poor customer service
• Case Studies
• Possible alternatives
Source: EPA, Safe Drinking Water Federal Information System
 Privatization Types
Full Private Control (Sales)
Public-Private Partnerships

•Concessions Edison’s deal

•Lease
•Management
•Operation & Maintenance
•Consulting & Services
Full Public Control
 Key Risk: Borrowing Trouble
• Increased water rates = taxed through the tap
– Nontransparent way to raise revenue for general
government
• Fiscally irresponsible
– Off-budget borrowing
• Expensive loans
– Private companies do not donate money
 Key Risk: Loss of Local Control
• Development and Planning
– Lack of regional cooperation for watershed protection
• Interdepartmental coordination
– Difficulty timing of water line repairs with road repaving to avoid
redundancy
• Project selection
– Reduction of unregulated contaminants
– Local priorities
• Rate structure
– Determined by the contract, not the council or public regulators
 Key Risk: Rate Increases
• Expensive
– Concession fee recovered through rates
– Private financing costs are 1.5 to 2.5 times as
expensive as government borrowing
– Taxes and profits passed on to consumers
• Rates set by formula in contract
– Automatic hikes
– No ability for township to stop, no public input
• Result: Larger rate increases than otherwise
 Key Risk: Job Loss & Poor Service
• One in three jobs on average after privatizing
operations
• Loss of expertise and experience
– Water systems have high asset specificity 2 Water Privatization Threaten

• Fewer hands-on-deck 1. One in three workers could

From Atlanta to Indianapolis, dramatic

– Slower responses to customer service requests

takeovers of public water and sewer sys
ter and wastewater privatizations, corpo
loss of 34 percent (see table 1 and figure

– Maintenance backlogs Po
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• Corner cutting
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 Key Risk: Bargaining Power
• Local governments negotiate from weaker
bargaining positions
– Lack necessary in-house expertise to negotiate,
administer and oversee complex long-term
contracts
• Opportunism by private entities
– Suez is a multinational water corporation
– KKR is a large Wall Street private equity firm
 Case Study: Bayonne, New Jersey
• Deal: Concession • Pop: 66,000
• Term: 40 Years • Year: 2012
• Water & Sewer
Key Outcomes:
- Rates increased by 28% in first 4 years
- Shortfall in sales triggered unexpected increase
- Promised 4 year rate freeze
- Water liens tripled in first year of deal
- All 30 employees retained for 1 year, then cut to 19 employees
“City officials said if Suez, the company that operates Bayonne's
water supply, went out and borrowed the money instead of the
city bonding for it, the project would have cost taxpayers more
due to higher interest rates in the market.

“‘You're talking about single digit rates as opposed to double

digit rates for what Suez was going to charge if they borrowed it
and did the work,’ Councilman Gary La Pelusa Sr. said. ‘It's a lot
of money in savings, probably tens of thousands I would say.’”

- McDonald, Corey. “Bayonne bonds for nearly $12 million to fix leak in water
aqueduct.” The Jersey Journal. September 18, 2018.
 Case Study: Middletown, Penn.
• Deal: Concession • Pop: 9,000
• Term: 50 Years • Year: 2015
• Water & Sewer
Key Outcomes:
- 11. 5% surcharge because of falling sales, April 2018
- Promised 4 year rate freeze
- Borough sued to stop and change contract terms
- Borough sued ex-solicitor, consultant for bad advice
- Two-day, borough-wide boil order, July 2018
“[Getting out of the lease] would be a blessing
if we could accomplish that. It would better suit
our town if this water and sewer would be back
under control [of the borough].”
- Middletown Council President Damon Suglia
told the Press & Journal
Source: Miller, Dan. “Will borough try to get out of the 50-year Suez water and sewer
lease? Suglia hints it's possible.” Press & Journal. May 9, 2018.
 Possible Alternatives
• Public sector partnerships
– Public-public partnerships
– Bulk purchasing
– Shared services
• Regional collaboration
• Re-municipalize water system and consolidate
water and sewer systems
– Synergies
 Benefits of
Public Control of Water
• Affordability
• Smart growth and regional planning
• Watershed protection and conservation
• Environmental protection
• Long-term water resource management
• Transparency
• Ballot-box accountability
 Next Steps
• Request draft contract for public review and input
– Are there surcharge provisions allowing automatic
increases for capital improvements and falling water
usage above and beyond the base rate hikes?
– Can the township freely exit the deal or is it trapped
for 40 years?
• Urge your council person to reject the deal
• Join us at the Hearing later this month.
 Questions?
Junior Romero
jromero@fwwatch.org
(909) 202-5961